STANDING DOLLAR PEG AND MOVED TO A SYSTEM IN WHICH THE CURRENCY FLOATS WITHIN MANAGED BANDS. BUT SINCE THEN THE YUAN HAS APPRECIATED ONLY 1.16 PERCENT -- A PACE THAT HAS FRUSTRATED U.S. BUSINESSES, LAWMAKERS AND THE BUSH ADMINISTRATION, WHO ARGUE AN UNDERVALUED CURRENCY IS GIVING CHINA AN UNFAIR TRADE EDGE. OFFICIALS FROM THE G7 -- THE UNITED STATES, BRITAIN, CANADA, FRANCE, GERMANY, ITALY AND JAPAN -- DEPARTED FROM RECENT PRACTICE AND SPECIFICALLY POINTED AT CHINA IN THEIR COMMUNIQUE ON FRIDAY AS A COUNTRY THAT "ESPECIALLY" NEEDED MORE CURRENCY FLEXIBILITY. IN HIS STATEMENT, ZHOU OUTLINED A SERIES OF STEPS BEIJING HAS TAKEN SINCE THE JULY REVALUATION AND SAID THE YUAN NOW BETTER REFLECTED MARKET CONDITIONS. "SINCE THE IMPLEMENTATION OF THESE EXCHANGE REFORMS, THE (YUAN) EXCHANGE RATE HAS BEEN MOVING IN BOTH DIRECTIONS AGAINST THE U.S. DOLLAR, DISPLAYING A LARGER FLEXIBILITY BASED ON MARKET SUPPLY AND DEMAND," HE SAID. ZHOU AGREED WITH THE G7 OFFICIALS, WITH WHOM HE HAD MET ON FRIDAY, THAT REDUCING LARGE GLOBAL TRADE AND INVESTMENT IMBALANCES WAS A SHARED RESPONSIBILITY, BUT HIS EMPHASIS ON WHERE THE BULK OF RESPONSIBILITY LAY WAS DECIDEDLY DIFFERENT. "THE REBALANCING PROCESS WILL REQUIRE ALL PARTIES, PARTICULARLY THE MAJOR DEVELOPED COUNTRIES, TO TAKE JOINT RESPONSIBILITY AND ADOPT A SET OF COMPLEMENTARY ECONOMIC POLICIES AND STRUCTURAL REFORMS," HE SAID. "WE BELIEVE THAT AN ORDERLY ADJUSTMENT OF THESE IMBALANCES IS IN THE INTERESTS OF ALL COUNTRIES," ZHOU SAID. "WE ALSO BELIEVE THAT GLOBAL ECONOMIC IMBALANCES CAN BE ADJUSTED GRADUALLY THROUGH VIGOROUS ACTIONS ON THE ONE HAND AND PATIENCE ON THE OTHER." THE CENTRAL BANK CHIEF ALSO WARNED THAT CURRENT FAVORABLE CONDITIONS IN FINANCIAL MARKETS COULD YIELD TO "A SUDDEN REVERSAL IN SENTIMENT" GIVEN A HIGH DEGREE OF INVESTOR RISK-TAKING, THE POTENTIAL IMPACT OF RISING INTEREST RATES ON HOUSING MARKETS AND A LACK OF HEDGE FUND SUPERVISION. HE SAID THE RISKS ARGUED FOR GREATER POLICY COORDINATION AMONG THE WORLD'S RICHEST NATIONS. "THE LACK OF POLICY COORDINATION IN THE MAJOR ECONOMIES AS THEIR MONETARY CONDITIONS TIGHTEN COULD RESULT IN LARGE AND VOLATILE MOVEMENTS OF FINANCIAL MARKETS," ZHOU SAID. "WE CANNOT IGNORE THE RISK OF DISORDERLY ADJUSTMENTS."
