BLOOMBERG in Beijing

Beijing may let the yuan trade more freely against the US dollar "in the near future" before switching to a peg against a basket of currencies, according to NPC vice-chairman Cheng Siwei.

"In the near future, China may mainly focus on widening the floating band," Mr Cheng told the International Finance Forum, adding that he was speaking as a scholar rather than an official.

"In the long term, China may explore ways to peg the yuan with a basket of currencies."

Allowing the yuan to appreciate would mitigate the impact of foreign capital inflows that have pushed up the mainland's money supply, undermining efforts to slow the economy.

It would also help to answer criticism from the United States, Japan and other countries that say the yuan peg undervalues the currency, giving the mainland an unfair trading advantage. "The chances are increasing now that they will do something in the near future, and our view is that there's a significant chance in the next three months," said Frank Gong, chief China economist at JPMorgan Chase in Hong Kong.

A spokesman for the People's Bank of China declined to comment on Mr Cheng's remarks.

Beijing has said repeatedly it plans to make the yuan fully convertible, without giving a timetable.

Yesterday, Xinhua quoted Vice-Minister of Finance Lou Jiwei as saying the central government was not likely to revalue the yuan in the short term.

The International Monetary Fund has urged Beijing to move towards greater exchange-rate flexibility, saying it would be in its best interest and would reduce the likelihood of a "hard landing" for the economy.

Moving to a currency basket might help accomplish that, the IMF said in a report last week.

"I personally believe it's a reasonable reform direction," Mr Cheng said. "We can't do it overnight because 90 per cent of trade settlements are in dollars. If we do that, the US dollar will take too much weight."

Conditions might not be right for the yuan to be made fully convertible until after Beijing hosts the 2008 Olympics, he said.

The government would open the capital account only gradually to ensure it kept control, Mr Cheng said.