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Market to Have More Say in Yuan Value: PBOCs Yi
 

China is ready to move on letting the market play a bigger role in foreign exchange rates, Yi Gang, deputy governor of the People's Bank of China, said on Saturday.

"It's time to let the market more or less decide the rate while reducing the intervention," Yi said at a panel discussion on the sidelines of the International Monetary Fund's annual spring meetings. Yi, who is also the director of the State Administration of Foreign Exchange, answered "Yes" when asked if Beijing would act further to make the foreign exchange rate more flexible.

China's central bank announced a widening of the yuan's trading band against the US dollar from 0.5 percent to 1 percent on April 14, its first move since 2007.

On Thursday, the IMF said the decision was a step in the right direction, and an assessment of the currency's valuation will be seen in the coming months.

"This reform is aiming at increasing the flexibility of the renminbi exchange rate and making market forces play a more important role in determining the rate," Yi said.

He did not outline specific plans or schedules, but said there have been "persistent two-way bets" on the renminbi exchange rate in the last two quarters, as opposed to the one-way bet of the past. Doubling of the yuan's trading band last week was the first widening since 2007.

Account surplus

China's current account surplus dropped to about 2.7 percent of GDP in 2011 from over 10 percent in 2007, and the IMF's latest World Economic Outlook has sharply reduced its prediction for its growth.

"I'd say around two-thirds (of the decline in the surplus) is due to long-term structural changes, for example, the increasing labor costs and rising renminbi exchange rate. The other third comes from weakening external demand," Yi said.

An IMF official said previously that the decline in China's current account surplus was driven more by investment than consumption, raising the concerns of the country risking new domestic imbalance.

"In terms of stimulating domestic demand, it is definitely the right direction to go, and lots may be done to achieve the goal, but we must avoid economic bubbles and exchange rate overshooting," Yi said.


(China Daily 2012-04-24)
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