China will continue to improve its currency regime and seek
greater flexibility of the yuan while keeping the exchange rate
stable at a suitable and balanced level, a Foreign Ministry
spokesman said yesterday.
He made the remarks after the Bush administration on Wednesday
said it would not brand China as a country manipulating its
currency for unfair trade advantage.
"China has always taken a highly responsible attitude in
defining its currency regime and proceeded on a path conducive to
China's economic and social development, as well as to regional
economic and financial stability," Liu Jianchao told a news
briefing in Beijing.
"We will stand firm in our reform of the financial system to
improve mechanisms for the renminbi exchange rate, increase the
flexibility of the exchange rate, improve the ability of financial
institutions to manage risks and ensure that the renminbi exchange
rate remains stable and rational," Liu said.
The US Treasury Department said Beijing was moving, albeit
"slowly," on currency reforms.
China ended the yuan's decade-old peg to the US dollar last
July, switching to a more flexible exchange rate system linked to a
basket of world currencies. The government has allowed the yuan to
rise by more than 3 percent against the dollar since then.
"The Treasury Department will closely monitor China's progress
in implementing its economic rebalancing strategy... and continue
actively and frankly to press China to quicken the pace of renminbi
flexibility," the Treasury Department said in a semi-annual report
on currency practices of key trading partners.
Two key lawmakers Lindsey Graham, a South Carolina Republican
and Charles Schumer, a New York Democrat said on Wednesday they
would not seek punitive trade legislation against Beijing until
September 30 in order to give China more time to adopt a more
flexible foreign exchange rate regime.
The Treasury said China did not meet "technical requirements"
set out in a 1988 law for being labelled a manipulator and cited a
commitment to move to a flexible exchange rate given by Chinese
President Hu Jintao during a US visit in April.
Treasury Secretary John Snow said the United States is not
setting any deadlines for Beijing to demonstrate greater latitude
in its foreign exchange regime.
"We don't have a specific target in mind," he said, when asked
if the United States was seeking progress by year-end.
The report implied that the Treasury intends to enlist the
International Monetary Fund (IMF) in a strengthened currency
surveillance role.
"It is also important that reforming China's exchange rate
regime be part of an international effort," the report said. It
added the Treasury "is supportive of the IMF managing director's
commitment to strengthen IMF exchange rate surveillance, both
bilaterally and multilaterally, as a means to assist materially
this process."
The Treasury has led a drive for the IMF to carry more of the
burden of persuading countries to let market forces play a larger
role in setting exchange rates, describing currency surveillance as
the IMF's main reason to exist.
Nobel laureate's warning
Nobel laureate Robert Mundell said yesterday that a strong
appreciation of China's currency would threaten the country's
stunning economic growth and could wreak havoc on the region.
"A big appreciation would be a source of a major crisis in
Asia," Mundell, a professor of economics at Columbia University,
told reporters in South Korea.
"It wouldn't be the same as it was before, it would be a
different kind of crisis," he added, referring to the devastation
of 1997-98 that wrecked economies including Thailand, Indonesia and
South Korea.
Mundell, in Seoul to address the Samsung Global Investors
Conference, won the Nobel Prize in economics in 1999 and his ideas
are credited with laying the groundwork for the euro.
He advocates the establishment of a world currency in which each
country's monetary unit would exchange at par with the global
one.
(China Daily May 12, 2006)