China's central bank on Tuesday said yuan will stay stable in 2006, while American manufacturers allege the Chinese currency is "undervalued" by as much as 40 percent.

The value of the Chinese currency will stand at a reasonable and balanced level, the People's Bank of China (PBoC) reiterated in a report.

It pledged to upgrade the managed, floating exchange rate system to cater to the need of China's economic development and financial stability, in an "independent, controllable and progressive" way.

American manufacturers argue that the yuan is kept "artificially lower" to make Chinese goods cheaper for American consumers and U.S. products more expensive in China, and the U.S. government says China accounted for a quarter of the country's trade deficit last year.

Pressure on China for another yuan revaluation is reportedly increasing.

But the PBoC report said, "The exchange rate plays a certain role in adjusting international payments, but it is not enough for the exchange rate alone to take that responsibility."

Policies on foreign trade, resource pricing and foreign exchange management should combine to promote the balance of international payments, it added.

The Chinese currency has gained nearly 3 percent against the U.S. dollar since its July 21 revaluation, trading at a central parity rate of 8.0485 versus the dollar on Tuesday.

Early this year, China began a new policy of calculating the yuan's value against the U.S. dollar using a weighted average of the prices given by major commercial banks. The highest and lowest offers are excluded from the calculation.

Giving banks a role in setting the new daily benchmark, or the central parity rate, is seen as a sign that the PBoC is willing to allow market forces a greater role in daily trading, analysts acknowledge.

The market force will play a "fundamental" role in the determination of the yuan's value, the central bank reiterated in its Tuesday report.

A central bank survey last November on 1,113 enterprises with foreign trade rights showed that Chinese enterprises responded positively to the new exchange rate mechanism.

Nearly three-quarters of these enterprises say their exports either rose or kept stable in November.

Earlier figures showed that trade surplus prompted China's foreign exchange reserves to surge to 818.9 billion U.S. dollars by the end of last year, second only to Japan.

The PBoC has stressed that a floating yuan is not simply one that will appreciate, but the prevailing view among industry watchers is that the yuan will strengthen gradually this year.

Source: Xinhua