No one-off moves in RMB exchange rate reform
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The People's Bank of China (PBOC), also known as the central bank, said Sunday that it would not conduct a one-off revaluation of the RMB (yuan) exchange rate.
China would keep the yuan "basically stable at a reasonable and balanced level", and manage and adjust the RMB exchange rate based upon the floating bands previously announced in the interbank foreign exchange market, the central bank said in a statement posted on its website.
The PBOC aimed to promote China's balance of international payments while safeguarding the stability of the nation's macro economy and financial markets, the statement said.
The statement came one day after the central bank announced it would further promote the reform of the RMB exchange rate regime and increase the currency's flexibility.
Economists said a further reform would benefit the country's economy, but should continue gradually.
Further move on the reform path
The move was in line with China's long-term fundamental interests, as it promotes the economic structure adjustments that will lead to a sustainable growth, according to the statement.
The floating currency exchange rate would help guide resources to the service industries and upgrade the industry while reducing the nation's trade imbalance and its reliance on exports, the statement said.
It also said a flexible currency exchange rate regime would help curb inflation and asset bubbles and create a more favorable international development environment for China.
Ba Shusong, researcher with the Development Research Center under the State Council, said that advancing the yuan reform would be conducive to China's economic development amid the economic globalization.
Also, it would help accelerate the economic restructuring in China, he said.
"It is the best time now for China to advance the reform against the backdrop of China's consolidated economic recovery and a slim chance of a double-dip in the global economy," Li Daokui, a member of the monetary policy committee of the central bank, said.
He noted the announcement meant China had ended its crisis-mode exchange rate policy and would gear the policy back onto a normal track.
China moved to a managed floating exchange rate regime on July 1, 2005 which was based on market supply and demand and referencing a basket of currencies.
In 2008, the government narrowed fluctuations of the yuan's exchange rate to keep the currency relatively stable in a bid to counter the fallout of the global economic downturn, the statement said, adding the move contributed to the country's economic stability and recovery.
Many currencies posted large devaluations amidst the worst period of the crisis, while "a stable yuan is not only in the interests of China, it also greatly contributes to the economic recovery in Asia and even the world," the statement said.
Gradual proceeding
However, the central bank ruled out a one-off yuan appreciation, saying "at present, there is no basis for big swings or changes in the value of the yuan."
Large-scale appreciation would hurt the country's economic and financial stability, it said, adding that a gradual adjustment was necessary to give enterprises time to adjust their business structures.
Li Daokui said, generally speaking, China had seen relatively balanced international payments, and the yuan would not record a one-off big appreciation, but would be flexible in two directions.
China's decision to proceed with the reform of the yuan exchange rate was still down the road set in 2005, the statement said, adding China would rely more on a basket of currencies to determine the exchange rate, given its close ties with a number of trade partners.
Trade between China and the European Union in the first five months of the year accounted for 16.3 percent of China's total foreign trade volume. That volume between China and the United States, East Asian nations and Japan accounted for 12.9 percent, 10.1 percent and 9.4 percent, respectively, according to the statement.
Ding Zhijie, professor at the University of International Business and Economics, said the central bank was sending a clear signal that China would continue to steadily advance reform of the RMB exchange rate formation mechanism following the principles of being independent, controllable and gradual.
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