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Sunday 20 June 2010

China yuan stability pledged

Chinese bank notes 
China's currency policy has been criticised by the West 
 
China's central bank says it plans to keep the Chinese yuan "stable" and there will be no immediate revaluation of the currency. 

The comments come just a day after the bank announced plans to make the exchange rate more flexible.
But Chinese authorities have ruled out a large, one-off adjustment in the exchange rate.

China has come under increasing international pressure to change its currency policy.

The US in particular has complained that China is artificially keeping the value of the yuan low to help its exporters at the expense of foreign competitors.

On Saturday, US President Barack Obama welcomed China's promise of increased flexibility in exchange rates, but the Chinese central bank's latest comments cast doubt over the scale of its plans.

"There is at present no basis for major fluctuation or change in the [yuan] exchange rate," the bank's website said.

G20 agenda
  The "basic stability" of the currency would be maintained, it added, and keeping the yuan at a "reasonable, balanced level" would help ensure economic stability.

"The management and adjustment of the [yuan] exchange rate needs to be done in a gradual way."

The timing of China's exchange rate move is hardly accidental
Stephanie Flanders BBC economics editor Read Stephanie Flanders' blog
 
China has effectively pegged the yuan to the US dollar for the last two years.

In 2005, it briefly allowed a controlled appreciation of the currency, but ended that policy when the global economic crisis threatened demand for its goods abroad.

The yuan has stayed at around $0.147 since then, and would be expected to rise higher given a totally free exchange rate.

Analysts expect the yuan to appreciate slowly - by around 0.2% a month - in line with a recovery in demand from Europe.

Graph of the yuan against the dollar "A stronger yuan would not only help prevent trade tensions from developing later in the year, but, more importantly, would help to keep China's recovery on a sustainable path and to rebalance its economy," commented Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong.

China's currency policy was expected to be high on the agenda at the G20 summit to be held in Toronto later this month.

According to the BBC's economics editor Stephanie Flanders, the timing of China's concession is no coincidence.

"As usual, the wording is vague," she said.

"But the assumption must be that China plans to move back to the policy of allowing its exchange rate to appreciate in real terms against the dollar."

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China reiterates no one-off moves in RMB exchange rate reform

June 21, 2010

The People's Bank of China (PBOC) said Sunday it will not conduct a one-off revaluation of the RMB (yuan) exchange rate.

The PBOC said it will keep the yuan basically stable at a reasonable and balanced level and manage and adjust the RMB exchange rate based on the floating bands previously announced in the interbank foreign exchange market, a statement posted on its website said.

The PBOC aims to promote China's balance of international payments while safeguarding the stability of the nation's macro economy and financial markets, the statement said.

The statement came one day the PBOC announced it would further promote the reform of the RMB (yuan) exchange rate regime and increase the flexibility of the RMB exchange rate.

The move is in line with China's long-term fundamental interests, as it promotes the economic structure adjustments which will lead to sustainable growth.

The floating currency exchange rate will help guide resources to the service industries, which will upgrade the industry while reducing the nation's trade imbalance and its reliance on exports, the statement said.

The statement also said a flexible currency exchange rate regime will help curb inflation and asset bubbles and create a more favorable international development environment for China.

Sunday's statement emphasized the yuan be pegged to a basket of currencies given its close ties with a number of trade partners, adding that the U.S. dollar should not be the only gauge for judging the RMB exchange rate level.

Trade between China and the European Union in the first five months of the year accounted for 16.3 percent of China's total foreign trade volume, the statement said.

The United States, East Asian nations, and Japan accounted for 12.9 percent, 10.1 percent and 9.4 percent, respectively, according to the statement.

The PBOC decision signals its intention to leave the market more room to set the yuan's value, which is an irresistible trend and also a condition for the internationalization of the RMB, said Shen Minggao, Citibank's chief economist for greater China.

China moved to a managed floating exchange rate regime based on market supply and demand and referencing a basket of currencies on July 1, 2005.

The government narrowed fluctuation of the yuan's exchange rate in 2008 to keep the currency stable, in a bid to counter the global economic downturn, the statement said.

"A stable yuan was not only in the interests of China - it helped mitigate the impact of the global financial crisis," the statement said.

In the long run, currency reform will boost employment in the services sector, the statement said, adding that a floating exchange rate will prompt exports to shift to intensive processing, which will expand the industrial chain and create jobs.

But the statement noted a gradual adjustment is necessary to give enterprises time to adjust their business structure.

Source: Xinhua
 

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