China’s central bank has indicated that it may slow the pace at which the yuan is gaining against the US dollar, said David Hale, chairman of Hale Advisors.
“I had lunch with the People’s Bank of China on Friday, where they told me they are going to slow down the appreciation of the currency here,” Hale told a plenary session yesterday at the World Economic Forum in Tianjin, without disclosing the identity of the official he spoke with.
The yuan has gained 17.3 percent against the US dollar since the Chinese government abandoned the currency’s fixed peg in 2005 and traded at 6.8485 per US dollar on Friday.
It’s risen 6.7 percent this year, the best performer of 10 Asian currencies.
Weakening export demand because of the US housing slump and an international credit squeeze has stoked concern that China’s GDP growth may slump, costing jobs and leading to bad loans and sinking profits. Government options to stimulate the economy and protect exporters include loosening bank lending quotas and restraining gains by the yuan.
Chinese authorities “should have slowed the yuan’s appreciation from the start of 2008, because of the slower economic and export growth, and the difficulties small companies face,” said Peng Xingyun, an economist with the Chinese Academy of Social Sciences in Beijing. “The yuan’s appreciation in the first half was too fast. It slowed down since July and that pace will likely stay through the end of the year.”
A People’s Bank of China’s spokesman could not be reached yesterday to verify Hale’s comment. Two telephone calls to the State Administration of Foreign Exchanges in Beijing were not answered.
“The global economic situation is so uncertain that they’re not so sure what they should do,” Hale said. “They haven’t got a real decision, they’re just thinking about slowing the pace down.”
China’s economy grew 10.1 percent in the second quarter, the slowest pace since 2005.
China’s yuan may some day become a reserve currency, a medium of exchange that other countries are willing to keep as their foreign reserves, Hale said.
“Given the fact that China’s capital account isn’t convertible, we’re talking about something that may happen in 20 years, not tomorrow,” he said.
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