Central bank rules out one-off yuan revaluation
Source: Agencies/Shanghai Daily |
June 21, 2010, Monday
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Print Edition
Print Edition
China's central bank said yesterday it would maintain a stable exchange rate and didn't anticipate major changes in the value of the yuan, a day after saying it would manage the currency more flexibly.
In a statement about how reform would proceed, the central bank explicitly ruled out a one-off revaluation, repeatedly said there was no basis for any big appreciation and added that the currency's value was not far off its fair level.
"There is at present no basis for major fluctuation or change in the renminbi exchange rate," the People's Bank of China said on its Website.
The central bank promised to implement "dynamic management and adjustment," which could lead to the yuan falling, not just rising, against the dollar depending on how other currencies perform.
The bank said it would rely more on a basket of currencies that includes the US dollar to determine the exchange rate.
"Keeping the yuan basically stable at a reasonable and balanced level is an important part of further promoting reform of yuan exchange rate formation mechanism," the central bank said, adding that gradual adjustment was needed in order to give firms time to adjust.
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.
The announcement, timed just before President Hu Jintao's trip to the G20 summit in Toronto, follows warnings from China last week against making its currency policies a main focus of the meeting.
"This important declaration by the Chinese government coming before the G20 summit is a big concession to prevent the yuan's exchange rate from being politicized by Western countries," said Gao Shanwen, chief economist at Essence Securities in Beijing.
China said that freezing the yuan to the dollar since July 2008 had helped mitigate the impact of the global financial crisis and spur the world's recovery.
With the economy on a more solid footing, it was time to enhance the exchange rate's flexibility, though there were no grounds for "large-scale appreciation," the central bank said.
However, some Chinese experts are concerned that the announcement might affect China's crucial export sector.
Writing on the National Business Daily's Website, economist Ye Tan said the move would pile pressure on exporters already contending with roughly 15 percent appreciation of the renminbi against the euro, as well as rising labor costs.
"China's exports are unstable and this is having a major impact on the actual economy," Ye wrote. "Appreciation of the renminbi needs to wait until economic readjustment is certain and China's domestic demand has truly expanded."
In a statement about how reform would proceed, the central bank explicitly ruled out a one-off revaluation, repeatedly said there was no basis for any big appreciation and added that the currency's value was not far off its fair level.
"There is at present no basis for major fluctuation or change in the renminbi exchange rate," the People's Bank of China said on its Website.
The central bank promised to implement "dynamic management and adjustment," which could lead to the yuan falling, not just rising, against the dollar depending on how other currencies perform.
The bank said it would rely more on a basket of currencies that includes the US dollar to determine the exchange rate.
"Keeping the yuan basically stable at a reasonable and balanced level is an important part of further promoting reform of yuan exchange rate formation mechanism," the central bank said, adding that gradual adjustment was needed in order to give firms time to adjust.
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.
The announcement, timed just before President Hu Jintao's trip to the G20 summit in Toronto, follows warnings from China last week against making its currency policies a main focus of the meeting.
"This important declaration by the Chinese government coming before the G20 summit is a big concession to prevent the yuan's exchange rate from being politicized by Western countries," said Gao Shanwen, chief economist at Essence Securities in Beijing.
China said that freezing the yuan to the dollar since July 2008 had helped mitigate the impact of the global financial crisis and spur the world's recovery.
With the economy on a more solid footing, it was time to enhance the exchange rate's flexibility, though there were no grounds for "large-scale appreciation," the central bank said.
However, some Chinese experts are concerned that the announcement might affect China's crucial export sector.
Writing on the National Business Daily's Website, economist Ye Tan said the move would pile pressure on exporters already contending with roughly 15 percent appreciation of the renminbi against the euro, as well as rising labor costs.
"China's exports are unstable and this is having a major impact on the actual economy," Ye wrote. "Appreciation of the renminbi needs to wait until economic readjustment is certain and China's domestic demand has truly expanded."
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