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PBOC says big swings in USD hurt global recovery
By Leo Zhang |
September 17, 2010, Friday
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Online Edition
Online Edition
China's central bank said today that financial stability is essential to economic growth and warned big swings in US dollar will hinder global recovery in the latest response to growing external pressure on yuan's appreciation.
The comments came just a day after China's Foreign Ministry rebutted US Treasury Secretary Timothy Geithner's criticism of its currency policy, cautioning increasing pressure would exacerbate the scenario.
"Large fluctuations in the dollar's exchange rate will impede global economic recovery," said the People's Bank of China in its 2010 financial stability report. "Overall, we still face latent risks and uncertainties on our way to ensure financial stability."
Talking specifically about the dollar, the Chinese central bank noted that a fast depreciation of the US currency could boost commodity prices, lead to asset bubbles and strain economic and financial stability.
However, a quick appreciation of the dollar will also put global capital markets under pressure, resulting in major volatility and affecting economies of resource-producing countries, the report said.
"The central bank comments reinforce the belief that China won't change its currency policy amid external pressure," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "There may be a gradual appreciation towards the year end. But we will definitely see more two-way movements in yuan's exchange rate."
US lawmakers have recently been amplifying calls on the yuan's appreciation, accusing China of making its currency "undervalued" to give its exporters an unfair advantage. Geithner said at this week's congressional hearings that the US government plans to adopt every available tool to urge China to pursue a faster currency appreciation.
Chinese Foreign Ministry spokeswoman Jiang Yu said on Thursday that the yuan's appreciation won't solve US trade deficit with China, adding pressure can't solve the issue.
China revamped its exchange-rate regime in June, linking yuan's value to more currencies. Since then, the Chinese currency has gained about 1.4 percent against the dollar with a 0.9 percent rise occurring in the past week.
"The pressure on the yuan won't ease until the US midterm elections in November," said Wu Min, an analyst with China Securities Co. "As the dollar may keep weak in the fourth quarter, the yuan will post a slight increase in the medium term."
China will rev up efforts to let more regions and companies settle cross-border trade in the yuan and boost offshore usage of the Chinese currency, according to today's report.
The Chinese central government will further open the country's financial markets and create more channels for overseas investors to obtain and use the Chinese currency, the central bank said.
It also noted in the report that challenges to maintaining financial stability include growing trade conflicts and uneven timings to phase out stimulus policies by developed nations.
It cautioned that domestic banks must be alert about credit risks as a rebound in domestic demand is not yet on a solid basis with potential fiscal and financial risks.
"We will maintain continuity and stability in macroeconomic stance, while making policies more targeted and flexible based on new situations, particularly in handling the relationship between supporting growth, adjusting economic structure and managing inflationary expectations," the report said.
The comments came just a day after China's Foreign Ministry rebutted US Treasury Secretary Timothy Geithner's criticism of its currency policy, cautioning increasing pressure would exacerbate the scenario.
"Large fluctuations in the dollar's exchange rate will impede global economic recovery," said the People's Bank of China in its 2010 financial stability report. "Overall, we still face latent risks and uncertainties on our way to ensure financial stability."
Talking specifically about the dollar, the Chinese central bank noted that a fast depreciation of the US currency could boost commodity prices, lead to asset bubbles and strain economic and financial stability.
However, a quick appreciation of the dollar will also put global capital markets under pressure, resulting in major volatility and affecting economies of resource-producing countries, the report said.
"The central bank comments reinforce the belief that China won't change its currency policy amid external pressure," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "There may be a gradual appreciation towards the year end. But we will definitely see more two-way movements in yuan's exchange rate."
US lawmakers have recently been amplifying calls on the yuan's appreciation, accusing China of making its currency "undervalued" to give its exporters an unfair advantage. Geithner said at this week's congressional hearings that the US government plans to adopt every available tool to urge China to pursue a faster currency appreciation.
Chinese Foreign Ministry spokeswoman Jiang Yu said on Thursday that the yuan's appreciation won't solve US trade deficit with China, adding pressure can't solve the issue.
China revamped its exchange-rate regime in June, linking yuan's value to more currencies. Since then, the Chinese currency has gained about 1.4 percent against the dollar with a 0.9 percent rise occurring in the past week.
"The pressure on the yuan won't ease until the US midterm elections in November," said Wu Min, an analyst with China Securities Co. "As the dollar may keep weak in the fourth quarter, the yuan will post a slight increase in the medium term."
China will rev up efforts to let more regions and companies settle cross-border trade in the yuan and boost offshore usage of the Chinese currency, according to today's report.
The Chinese central government will further open the country's financial markets and create more channels for overseas investors to obtain and use the Chinese currency, the central bank said.
It also noted in the report that challenges to maintaining financial stability include growing trade conflicts and uneven timings to phase out stimulus policies by developed nations.
It cautioned that domestic banks must be alert about credit risks as a rebound in domestic demand is not yet on a solid basis with potential fiscal and financial risks.
"We will maintain continuity and stability in macroeconomic stance, while making policies more targeted and flexible based on new situations, particularly in handling the relationship between supporting growth, adjusting economic structure and managing inflationary expectations," the report said.
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