China is intensifying its studies on adopting a more flexible foreign exchange system to handle the "unstable" capital that it fears could enter the country, thereby "putting pressure on the yuan exchange rate mechanism, buffeting domestic financial markets and insidiously affecting financial stability," The Associated Press reported, citing the central bank's annual report. The bank's comments did not imply policy changes, the report said, but did argue for an urgent reform of Beijing's rigid foreign exchange policies, which pegs the Chinese currency to the US dollar.
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