Cheng said China should tune its foreign exchange policy to market demand without interference from the central bank if the floating exchange rate fluctuates within 3 percent.

"The 3 percent fluctuation is acceptable at current stage We can expand the movement range and types of currency gradually when the government's management level improves, and finally make Chinese yuan a fully convertible currency," Cheng said, without providing any time frame, but adding that the final goal will be achieved "sometime soon".

China ended its currency peg to the US dollar by linking the value of the yuan to a basket of currencies since July 2005, but re-pegged it to the US currency from July 2008 after the global financial crisis.

With regard to China's mounting inflation concerns, Cheng said it would be difficult for the government to achieve the consumer price index (CPI) target of 3 percent this year, as more liquidity would enter the real economy. "5 percent CPI growth in 2010 looks more achievable," he said.

The country posted a higher-than-expected 2.7 percent CPI in February.

China should discuss with the US and Europe about exit strategies, and act in accordance with these nations to avoid the excessive hot money inflows that may fuel domestic inflation, he said.

(China Daily April 1, 2010)