China reiterates no one-off moves in RMB exchange rate reform

08:15, June 21, 2010      

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The People's Bank of China (PBOC) said Sunday it will not conduct a one-off revaluation of the RMB (yuan) exchange rate.

The PBOC said it will keep the yuan basically stable at a reasonable and balanced level and manage and adjust the RMB exchange rate based on the floating bands previously announced in the interbank foreign exchange market, a statement posted on its website said.

The PBOC aims to promote China's balance of international payments while safeguarding the stability of the nation's macro economy and financial markets, the statement said.

The statement came one day the PBOC announced it would further promote the reform of the RMB (yuan) exchange rate regime and increase the flexibility of the RMB exchange rate.

The move is in line with China's long-term fundamental interests, as it promotes the economic structure adjustments which will lead to sustainable growth.

The floating currency exchange rate will help guide resources to the service industries, which will upgrade the industry while reducing the nation's trade imbalance and its reliance on exports, the statement said.

The statement also said a flexible currency exchange rate regime will help curb inflation and asset bubbles and create a more favorable international development environment for China.

Sunday's statement emphasized the yuan be pegged to a basket of currencies given its close ties with a number of trade partners, adding that the U.S. dollar should not be the only gauge for judging the RMB exchange rate level.

Trade between China and the European Union in the first five months of the year accounted for 16.3 percent of China's total foreign trade volume, the statement said.

The United States, East Asian nations, and Japan accounted for 12.9 percent, 10.1 percent and 9.4 percent, respectively, according to the statement.

The PBOC decision signals its intention to leave the market more room to set the yuan's value, which is an irresistible trend and also a condition for the internationalization of the RMB, said Shen Minggao, Citibank's chief economist for greater China.

China moved to a managed floating exchange rate regime based on market supply and demand and referencing a basket of currencies on July 1, 2005.

The government narrowed fluctuation of the yuan's exchange rate in 2008 to keep the currency stable, in a bid to counter the global economic downturn, the statement said.

"A stable yuan was not only in the interests of China - it helped mitigate the impact of the global financial crisis," the statement said.

In the long run, currency reform will boost employment in the services sector, the statement said, adding that a floating exchange rate will prompt exports to shift to intensive processing, which will expand the industrial chain and create jobs.

But the statement noted a gradual adjustment is necessary to give enterprises time to adjust their business structure.

Source: Xinhua


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