The Chinese currency will respond to market change in a more
flexible way, but a forced considerable revaluation cannot help at
all, Chinese Vice-Premier Wu Yi said on Thursday in Washington.
"I believe the floating band of the RMB exchange rate will be
constantly expanded with market change," Wu said at a welcome
banquet hosted by six American organizations.
"China's exchange rate reform will be advanced in an orderly way
under the principle of self-initiative, controllability and gradual
progress," she said.
Wu said the elasticity of the RMB exchange rate will be
continuously increased through the reform, with a roughly stable
RMB exchange rate maintained at a reasonable equilibrium.
"In the meantime, we must take measures to effectively control
and duly dispose of risks within the financial system," she
said.
The exchange rate of the Chinese currency was a hot topic during
the second round of the China-US Strategic Economic Dialogue held
early this week in Washington.
Some people in the United States have blamed the Chinese
currency for their country's ballooning trade deficit with China,
claiming that the RMB has given Chinese exporters an unfavorable
competitive edge.
But Wu said it is recognized by many internationally renowned
economists that the RMB exchange rate is not the main cause of the
huge US trade deficit.
"Any attempt to impose pressure on the RMB for its considerable
revaluation cannot help at all and could probably injure the
interests of the two countries and the public," she said.
Since China introduced a RMB exchange rate reform in July 2005,
the RMB has now appreciated by 8.1 percent in cumulative terms.
The People's Bank of China, the country's central bank, on May
21, widened the RMB trading band from 0.3 percent daily movement
against the US dollar to 0.5 percent.
"A more flexible foreign exchange regime is clearly in line with
China's strategical goals," said Zhao Xijun, finance professor with
Renmin University of China.
According to Zhao, the Chinese government has long made clear
its intention to achieve full convertibility of the RMB and open
its capital account.
China has taken a step toward allowing greater market-driven
flexibility in its exchange rate regime since the foreign exchange
reform in 2005, Zhao said.
In view of the expansion of the floating band for the RMB, Zhao
said he believed the pressure of revaluation might increase because
of China's huge trade surplus and potential inflow of more foreign
funds.
The widening of the RMB trading band has already triggered
market expectations for more aggressive appreciation of the Chinese
currency.
"But we believe this is the wrong conclusion to draw. We are
holding fast to our view that it will be only 4 percent or so
against the US dollar in 2007," said Stephen Green, an economist
with Standard Charted Bank.
(China Daily May 26, 2007)