Obstacles to achieve global yuan
Source: Bloomberg News |
June 18, 2012, Monday
|
Print Edition
Print Edition
CHINA'S efforts to make the yuan a global currency may be hampered by the lack of an independent monetary policy, fragile domestic financial markets and an "unbalanced" economy, a report edited by an adviser to the nation's central bank warned.
"In the process of yuan internationalization, it will be hard to gain the confidence of the international community in the value of the yuan if monetary policy lacks sufficient independence," according to the report, edited by Chen Yulu, from the International Monetary Institute of Renmin University in Beijing.
Chen is an academic adviser to the People's Bank of China and president of the university.
China has been promoting wider use of the yuan in international investment and trade settlement to reduce the US dollar's global dominance and curb its own reliance on the currency of the world's biggest economy. China controls the value of the yuan and restricts flows of capital in and out of the country for investment purposes.
While Europe's debt crisis will dominate discussions when leaders of the Group of 20 nations meet in Mexico this week, Germany plans to call attention to a number of issues including the yuan exchange rate, two government officials said in Berlin on Tuesday.
The yuan jumped the most in eight weeks last Friday as the PBOC strengthened its reference rate, helping fend off criticism of China's currency policy in the run-up to the G20 meeting. The yuan, which rose 4.7 percent versus the dollar last year, has shed 1.1 percent this year.
In its first formal evaluation of China's financial system published in November, the IMF warned the nation is confronting a "steady buildup of financial sector vulnerabilities" and needs to overhaul its state-dominated banking system. The government needs to change the way interest rates are set and allow the yuan to trade more freely to help contain risks in the financial system, it said.
The nation's "excessively rigid" exchange-rate system "casts doubt on" the independence of the PBOC, according to Saturday's report from the institute.
Policy makers should make the system "more open and transparent" by designing a mechanism where the yuan is valued against a basket of currencies "as soon as possible," according to the report. That would send a "clear, convincing" signal that the yuan isn't pegged to a single currency and that fluctuations are a result of many factors including market demand and supply, the report said.
Chinese Policy makers pledged in a five-year plan running through 2015 to keep loosening controls on currency flows and make the exchange rate more flexible.
The central bank in April widened the yuan's daily trading band against the dollar for the first time since 2007, allowing it to fluctuate up to 1 percent either side of a daily reference rate from a previous 0.5 percent.
"In the process of yuan internationalization, it will be hard to gain the confidence of the international community in the value of the yuan if monetary policy lacks sufficient independence," according to the report, edited by Chen Yulu, from the International Monetary Institute of Renmin University in Beijing.
Chen is an academic adviser to the People's Bank of China and president of the university.
China has been promoting wider use of the yuan in international investment and trade settlement to reduce the US dollar's global dominance and curb its own reliance on the currency of the world's biggest economy. China controls the value of the yuan and restricts flows of capital in and out of the country for investment purposes.
While Europe's debt crisis will dominate discussions when leaders of the Group of 20 nations meet in Mexico this week, Germany plans to call attention to a number of issues including the yuan exchange rate, two government officials said in Berlin on Tuesday.
The yuan jumped the most in eight weeks last Friday as the PBOC strengthened its reference rate, helping fend off criticism of China's currency policy in the run-up to the G20 meeting. The yuan, which rose 4.7 percent versus the dollar last year, has shed 1.1 percent this year.
In its first formal evaluation of China's financial system published in November, the IMF warned the nation is confronting a "steady buildup of financial sector vulnerabilities" and needs to overhaul its state-dominated banking system. The government needs to change the way interest rates are set and allow the yuan to trade more freely to help contain risks in the financial system, it said.
The nation's "excessively rigid" exchange-rate system "casts doubt on" the independence of the PBOC, according to Saturday's report from the institute.
Policy makers should make the system "more open and transparent" by designing a mechanism where the yuan is valued against a basket of currencies "as soon as possible," according to the report. That would send a "clear, convincing" signal that the yuan isn't pegged to a single currency and that fluctuations are a result of many factors including market demand and supply, the report said.
Chinese Policy makers pledged in a five-year plan running through 2015 to keep loosening controls on currency flows and make the exchange rate more flexible.
The central bank in April widened the yuan's daily trading band against the dollar for the first time since 2007, allowing it to fluctuate up to 1 percent either side of a daily reference rate from a previous 0.5 percent.
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