China may let its currency rise gradually once the economic recovery becomes sustainable, Morgan Stanley’s Asia chairman Stephen Roach said yesterday.
“As the recovery becomes more sustainable they might go back to an incremental type of currency appreciation, but that’s not going to make much difference for Asia,” Roach told Reuters on the sidelines of a meeting of APEC economies.
The yuan has become a hot topic at the APEC meeting after finance ministers of the 21 economies, following a meeting in Singapore on Thursday, urged flexible foreign exchange rates to reduce global economic imbalances.
New Zealand Prime Minister John Key told Reuters Television earlier yesterday he expected minor appreciation in the yuan, adding such a move would help support the global recovery.
IMF managing director Dominique Strauss-Kahn, also in Singapore, said China’s economic stimulus was helping to rebalance its economy toward relying more on domestic demand, but it still needed to let its currency rise over time.
On Wednesday China’s central bank said it would consider major currencies in guiding the yuan, suggesting a departure from an effective US dollar peg that has been in place since the middle of last year.
The reference to a new set of benchmarks for determining the value of the yuan holds out the possibility of a departure from recent practice, which has seen the currency held steady since the middle of last year at around 6.83 yuan per US dollar.
Roach said an early appreciation could undermine the recovery in the export-led region given China is leading the revival.
“Their exports to China have been a critical piece to their own recovery so they have to watch out and be very careful that they don’t bite the very hand that feeds them,” he said.
The recovery in Asia-Pacific economies has been gathering steam, with China, South Korea, Singapore and Indonesia reporting a pick up in annual economic growth in the September quarter compared with the previous quarter.
Much of the growth has been due to fiscal and monetary stimulus implemented by governments around the world and APEC countries have agreed to keep the policies in place as long as it takes to cement the rebound.
Roach said he expected these measures to remain until mid next year.
“My guess is middle of 2010 you begin to see some moves in that regards, but that will be small,” he said.
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