Flexible yuan an inflation tool - Paulson

An appreciation of the yuan benefits China as it would give the Government a "valuable" tool for controlling inflation in the world's fastest-growing major economy, former United States Treasury Secretary Henry Paulson said.

"I believe very strongly that it is in China's interest to have currency flexibility, to keep moving the renminbi," Paulson said at the Boao Forum for Asia, using another name for the Chinese currency. "It gives the Government a very valuable, and I think it is going to become an increasingly necessary, policy tool to deal with inflation. An appreciation of the yuan would also help spur domestic consumption," he said.

Paulson's comments come as speculation increases that China will raise the value of the yuan, which has been pegged to about 6.83 to the US dollar since July 2008.

On April 8, Treasury Secretary Timothy Geithner made an unscheduled visit to Beijing to meet his Chinese counterpart Vice-Premier Wang Qishan in Beijing.

"China has benefited enormously from reform and opening up and I think continued reform is very important and the renminbi is one aspect of that," Paulson said.

Paulson, also a former chief executive of Goldman Sachs Group, has worked for years to forge ties with many Chinese leaders. On Saturday he met Chinese Vice-President Xi Jinping and on April 7 he met Chinese Premier Wen Jiabao.

US lawmakers have urged President Barack Obama to label China a currency manipulator and called on the Administration to use the threat of trade sanctions to force an end to the yuan's peg to the dollar that they say gives Chinese exporters an unfair advantage.

"The US concerns are significant," Paulson said.

"This needs to be managed in a way that there is continual progress because this getting out of hand is in no one's interests. Public pressure from abroad complicates a revaluation of the yuan," he said.

Long Yongtu, China's former chief trade negotiator who shepherded the nation's entry into the World Trade Organisation, echoed Paulson's comment.

"The more external pressure, the more complicated the issue could be for China to deal with domestically," said Long, who is also secretary-general of the Boao Forum. "The exchange-rate matter is the sovereign matter for an independent country

"China will surely make its own decision."

- BLOOMBERG