BEIJING, Dec 11: China's exchange rate is a sovereign issue for the government to decide by itself, a senior central bank official said on Monday, just days before a visit by a high-powered US delegation.

“The yuan exchange rate issue is a sovereign issue and the government will take internal and external balances into consideration when making decisions on the yuan,” said Yi Gang, an assistant governor for the central bank.

Speaking to a financial conference in Beijing, Yi was responding to speculation that the visit by the delegation, headed by US Treasury Secretary Henry Paulson, could lead to upward pressure on the Chinese yuan.

Since China only allows incremental changes in its exchange rate, it is forced to buy up the foreign currency that flows across its borders as a result of its trade surplus, as foreign direct investment or as speculative funds.

Yi said the central bank's cost of sterilizing capital inflows is relatively low.—AFP