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 commentary on Saturday’s announcement, the People’s Bank of China attempted to assuage fears of a major strengthening of the yuan.
“There is at present no basis for major fluctuation or change in the renminbi [yuan] exchange rate,” the bank said on its Web site.
PHOTO: NICKY LOH, REUTERS
Keeping the rate at a “reasonable, balanced level” would contribute to economic stability and help restructure the Chinese economy with greater emphasis on services and consumption, the statement said.
“The management and adjustment of the [yuan’s] exchange rate needs to be done in a gradual way,” an AFP story said, citing a central bank spokesperson it didn’t name.
The yuan’s value has been pegged to the US dollar for two years, a major source of friction with countries who say the currency is undervalued to China’s own benefit. The bank’s statement said it would rely more on a basket of currencies that includes the US dollar to determine the exchange rate.
Chinese officials have long said reforms to the currency would be gradual. While no specific policy changes were mentioned, financial markets will be watched closely today for any effects.
US President Barack Obama said China’s move would help protect the economic recovery, while the European Commission said it would benefit “both the Chinese economy and the global economy.”
Japan and the IMF, among others, all welcomed the move as a hopeful contribution to balancing the world economy. The announcement, timed just before Chinese President Hu Jintao’s (胡錦濤) trip to the G20 summit in Toronto, Canada, follows warnings from Beijing last week against making its currency policies a main focus of the meeting.
China has come under heavy pressure to reform from G20 member countries, including South Africa and Brazil as well as the US and those in Europe, who argue that the yuan is deliberately undervalued to keep Chinese exports unfairly cheap.
Industrial Bank (中國興業銀行) economist Jiang Shu (蔣舒) said the timing of the announcement marked an attempt to divert criticism of China at the meeting.
“It’s a way of throwing out the carpet for the G20, displaying again to international society the Chinese government’s determination on the exchange rate issue,” Jiang was quoted as saying on the Web site of the National Business Daily, a leading financial newspaper.
US patience with Beijing over the yuan had worn thin and lawmakers threatened to penalize it for a strategy they said was unfair and broke rules of global trade.
The announcement by the Chinese central bank explicitly ruled out a one-off revaluation or major appreciation, suggesting that the yuan will return at most to the path of gradual gains against the dollar followed for three years until mid-2008.
Democratic US Senator Charles Schumer, a leading critic, said China’s statement was too vague and pledged to press ahead with legal action to raise trade barriers.
US Treasury Secretary Timothy Geithner, who has delayed publication of a potentially embarrassing report that could cite China as a currency manipulator, stressed that China’s actions would speak louder than words.
“This is an important step, but the test is how far and how fast they let the currency appreciate,” he said.
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