China may regularly release yuan nominal effective exchange rates

16:50, July 23, 2010      

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China may try regularly releasing nominal effective exchange rates of the yuan, Hu Xiaolian, deputy governor of the People's Bank of China (PBOC), said in an article on the Web site of the PBOC.

The country would also gradually use the effective exchange rate as a reference system for the yuan exchange rate level as well as a reference for financial regulations, according to the article.

Hu said that the exchange rate fluctuations mainly adjust the total imports and exports in the real economy, so the adjustments to the yuan exchange rate should not depend only on China's bilateral trade relations with a single foreign country, nor only on the yuan exchange rate against the U.S. dollar.

She noted that China may try releasing the nominal effective exchange rate of the yuan on a regular basis in order to guide the public not to focus only on the yuan exchange rate against the U.S. dollar and gradually use the effective exchange rate as a reference system of the yuan exchange rate level and the reference for financial regulations.

She said that it is theoretically reasonable to use the real effective exchange rate as the targets of the exchange rate fluctuation management, but the nominal effective exchange rate, which is not inflation-adjusted, is more popular in practice.

"Referring to a basket of currencies instead of a single currency will not only enable the exchange rate fluctuations to better adjust the import and export, current accounts and the balance of payments, but also reveal the fluctuating characteristics of the exchange rate. The yuan exchange rate against a single currency moves up and down, marking a two-way fluctuation, but it generally remains stable on a rational, balanced base."

In response to recent market expectations of yuan depreciation, Lian Ping, chief economist with the Bank of Communications, said on July 22 that the short-term movement of the yuan exchange rate is associated with China's economic situation, capital flows and balance of current accounts, so it is natural for the short-run yuan appreciation or depreciation, indicating that the yuan exchange rate will experience two-way fluctuations in the short term.

Lu Zhengwei, chief economist at Industrial Bank, believes that following the diversification of China's trade structure, the investment structure will accordingly be diversified. It is expected that the central bank will also adjust both the types and weights of the currencies in the basket.

By People's Daily Online

(Editor:祁澍文)

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