World Bank Official Backs RMB Rate Policy

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Last updated at: (Beijing Time) Sunday, September 07, 2003

World Bank Official Backs RMB Rate Policy

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The World Bank chief economist for its China development program on Friday expressed support for the Chinese Government's plan to gradually liberalize the exchange rate of its currency, reported Sunday's edition of China Daily.

Speaking at a press conference in Beijing, Deepak Bhattasali said he had noted the Chinese Government's decision to let market forces to determine the exchange rate of renminbi eventually.

He said he agreed with the government that issues like adjustments following the country's accession to the World Trade Organization and banking reforms should be resolved before the exchange rate liberalization process can move more rapidly.

"We support these prepositions," he said.

The value of the Chinese currency has been a hot issue in recent months. There have been calls from the United States that China should revalue its currency to address the trade imbalance between the two countries.

However, Dominique Mensbrugghe, a Washington-based World Bank economist, said at the same conference that citing bilateral tradeimbalance as evidence for a currency's need to be revalued is not a sound approach.

The focus should be a nation's trade balance with the rest of the world. "The bilateral deficit is irrelevant here," he was quoted as saying.

Moreover, he pointed out the US trade deficit with its trade partners was caused by its own economic policy.

US Secretary of Treasury John Snow visited China last week over the issue, but was told by Chinese Premier Wen Jiabao that China will continue to maintain the stability of the exchange rates of the Renminbi under the current regulated, floating exchange rate system based on market supply and demand.

This system accords with China's reality and it also shows that China is highly responsible to the international community, the Premier said.

Zhou Xiaochuan, governor of China's Central Bank, the People's Bank, also stated on Wednesday that "It is too early to reach a conclusion on whether the Renminbi's value is undervalued or overvalued, so therefore it is unwise to make adjustments based on such an assumption".

The Renminbi's value, now fixed at around 8.28 to the dollar, will eventually be determined by market forces, said Zhou.

"The market will play a bigger and bigger role in deciding the exchange rate and when the market plays a more decisive role, China will allow a greater floating range for foreign exchange," Zhou said.

But he made it clear that China would not be goaded into swift action, saying it would reform the policy when the time was right.

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