Stable RMB exchange rate benefits world economy, Wen

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Last updated at: (Beijing Time) Tuesday, August 12, 2003

Stable RMB exchange rate benefits world economy, Wen

The stable RMB exchange rate helps promote the economic developments of China and its neighbors, as well as the world, Premier Wen Jiabao said Tuesday in a meeting with Citigroup Chairman Robert Rubin and its would-be CEO Charles Prince.

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Chinese Premier Wen Jiabao said Tuesday that the stable RMB exchange rate helps promote the economic developments of China and its neighbors, as well as the world.

Wen was speaking while meeting with Citigroup Chairman Robert Rubin and its would-be CEO Charles Prince.

He expounded on the Chinese government's policy on the RMB exchange rate, and said that China has taken notice of the concern of the international community on the RMB exchange rate.

"The Chinese government has always held a serious and responsible attitude towards the issue," said Wen.

He said that during the Asian financial crisis in 1997, China did not devalue the RMB and maintained its exchange rate, while many countries around China devalued their currencies. China's efforts had contributed to the stability of the economy and financial well being of the region and the world, he said.

A nation's exchange rate system and policy should be determined by the nation's domestic economic situation and international income and expenses, the premier said.

"A regulated, floating exchange rate system based on market supply and demand as implemented by China complies with the country's current situation."

China should further explore and improve the mechanism of China's RMB exchange rate as it goes deeper into financial reform, Wen said.

The premier also exchanged views with the guests over the world economic situation and other issues of common concern.

Also on Tuesday, China's central bank, the People's Bank of China (PBOC), confirmed that China will keep the exchange rate of its currency stable in the second half of this year.

China will "continue to maintain the basic stability of the RMB exchange rate'' and will further improve the mechanism through which the rate is formed on the basis of the existing market-based, managed floating-rate system, the PBOC said in its second-quarter monetary-policy report released on Tuesday.

The central bank's rhetoric was unchanged from its usual stance and was the latest government response towards growing international pressure to revalue the currency, also known as the yuan.

The United States, Japan and South Korea have called on China to let the renminbi appreciate. They said the currency is undervalued and is increasingly making China's exports cheaper as the US dollar -- to which the yuan is pegged -- keeps weakening.

The Chinese Government has said it will improve the rate-forming mechanism and will allow the yuan to float in a broader range but it has given no timetable for doing so.

The central bank noted that, in the remainder of this year, the upward pressure on the renminbi is likely to rise further as the slow recovery of the world economy may trigger broader trade protectionism. A United Nations report on June 25 predicted the world economy would grow by 2.25 per cent this year, slightly faster than the 2 per cent recorded last year.

The Chinese bank's report said: "The slow growth in the world economy is likely to further reinforce the international propensity for trade protectionism, which will constrain increases in China's exports and heighten the pressure for the renminbi to appreciate.''

The PBOC has already been scaling up purchases of mounting US dollar excesses in the market, largely as a result of strong export rises, to keep the yuan within its usual trading band of 8.2760 to 8.2800.

Such dollar purchases have translated into fast-growing supplies of renminbi and have pushed China's money supply to levels where the likelihood of serious inflation becomes a possibility, though a remote one.

The central bank also reiterated that it would maintain "a prudent monetary policy'' to support economic growth, although the growth of the broad money supply M2, which covers cash in circulation and all deposits, had quickened to 20.8 per cent in the first half of this year from 16.8 per cent last year.

But it called attention to the rapid rises in loans this year and said it would further examine the causes behind them.

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