“China should strengthen its reform of the yuan’s exchange rate,” Hu Xiaolian, a deputy governor at the People’s Bank of China (PBC), said in a statement on its website Wednesday.
“A fixed yuan exchange rate has caused excess capital in China’s financial system that may stoke inflation, making it difficult to manage the economy,” Hu said in another statement Monday on the PBC’s website. “Foreign exchange inflows have accelerated along with the speed of the country’s growth, and increases in financial liquidity create potential risks of heightened inflation and speculation in assets.”
The PBC, the central bank, announced a new exchange rate reform last month, which would allow a more flexible exchange rate and ensure the RMB will appreciate gradually, by 2 to 5 percent a year.
In further proceeding with the reform, continued emphasis would be placed on reflecting market supply and demand with reference to a basket of currencies.
Beijing held the yuan steady against the dollar beginning in 2008 to help China’s exporters compete amid the global financial crisis. Some overseas critics and manufacturers say the Chinese currency is undervalued by as much as 40 percent. They think the country’s undervalued exchange rate is an artificial boost for China’s export industry.
The International Monetary Fund (IMF) said Wednesday that the yuan is undervalued and a stronger yuan would help encourage consumer spending, helping to achieve Beijing’s goal of reducing dependence on exports and making its economy more self-reliant.
“The yuan is not undervalued,” the Communist Party mouthpiece, the People’s Daily, quoted He Weiwen, director of the US-China Economic and Trade Research Center at the University of International Business and Economics Wednesday.
“The yuan is the only currency in the world that has been revalued over the past 16 years. The rest all depreciated or have remained unchanged.”
The yuan has risen by 0.72 percent since last month. And it has gained against the US dollar to 22.09 percent since July 21, 2005.
The yuan finished at 6.7786 against the dollar on the over-the-counter market Tuesday, up from Monday’s close of 6.7795.
The PBC set the yuan’s central parity rate at 6.7785 to the dollar Wednesday, lower than the previous trading day’s central parity of 6.7742.
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