China's central bank said it will maintain the basic stability
of its currency, while improving the flexibility of the
renminbi.
In a statement published yesterday after its first quarter
monetary policy meeting, the People's Bank of China (PBC) said it would
"further perfect the forming mechanism of renminbi exchange rate,
broaden the foreign exchange market, increase the flexibility of
renminbi exchange rate, and maintain the basic stability of
renminbi at a reasonable equilibrium."
The bank noted that the financial system is operating soundly,
the new renminbi exchange rate regime is functioning stably, and
the exchange rate is stabilized at a reasonable equilibrium.
China surprised the market last July when it reformed a
decade-old exchange rate regime, allowing the renminbi to
appreciate by 2 percent against the US dollar and linking the
renminbi to a basket of currencies instead of the US dollar
alone.
But it is still facing international pressure to let the
renminbi appreciate further, although Chinese officials have been
reiterating that the exchange rate regime will be made more
flexible.
Two US senators, who drafted a bill that threatens to impose a
27.5 percent tariff on imports from China unless the renminbi is
allowed to strengthen substantially against the US dollar, are
currently visiting China.
China will expand the foreign exchange market and allow more
flexibility and fluctuation of the Chinese currency, Chinese
Premier Wen Jiabao told a press conference at the end of a plenary
session of the National People's Congress, China's legislative
body, earlier this month.
The Chinese monetary authorities have been accelerating the
construction of a more mature foreign exchange market by
introducing derivatives such as forwards and swaps.
Some US economists have refuted accusations that China is
manipulating its currency, noting the nation is being driven by
rising protectionism.
The threat of higher tariffs on Chinese exports if China does
not revalue its currency is just the beginning of mounting
protectionism in the United States, which was signaled in
preventing the acquisition of Unocal by a Chinese company and east
coast shipping facilities by a Dubai company, Stephen Roach, chief
economist of investment bank Morgan Stanley told a forum in Beijing
on Monday.
US politicians fuelled the trend by playing "a classic political
blame game," with China being increasingly singled out as the
scapegoat, he said.
"The Sino-US relations are perhaps the world's most important
bilateral economic relationship in the 21st century. That
relationship is now at risk and, if not attended to, it could
backfire, with significant negative impact on China, the United
States, and the broader global economy," Roach was quoted by Xinhua
News Agency as saying.
On the back of hefty surplus, China's forex reserves rose by
34.3 percent year-on-year to US$818.9 billion at the end of last
year, which was 17 percentage points slower than a year
earlier.
But economists have said China's export competitiveness comes
from other factors such as low labor costs, rather than exchange
rate.
(China Daily March 24, 2006)