China will push reforms to make the yuan more responsive to market forces, but the country would face new challenges if it opts to let the currency float more freely, the top foreign exchange regulator said on Monday.
The government would push economic and financial reforms and gradually ease restrictions on the flow of foreign exchange to help find a "balanced level" for the yuan, Guo Shuqing, head of the State Administration of Foreign Exchange (SAFE), told an economic forum in Beijing.
"China will definitely reform the mechanism by which the yuan exchange rate is formed," he said. "It's difficult to make a judgement on the level of a reasonable and balanced exchange rate under the situation that buying and selling of foreign exchange are restricted."
The yuan is convertible on the current account, which covers trade flows, but subject to tight curbs on the capital account, which covers investment.
China has eased some forex restrictions in recent months, letting travellers carry more money abroad and allowing companies to retain more of their foreign-currency earnings.
The SAFE said last week it would expand the official foreign exchange market by allowing non-banking institutions to trade under reforms to let market forces play a bigger role in setting the yuan exchange rate.
Guo said China would keep the yuan under a "managed float", a system Beijing maintains even though the yuan has been pegged at around 8.28 to the US dollar since 1996.
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