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China central bank to keep yuan stable
Published in The Saudi Gazette on 07 - 03 - 2010

China's central bank pledged on Saturday to keep the yuan's exchange rate basically stable in 2010 and said it would be flexible in implementing its fairly loose pro-growth monetary policy.
The People's Bank of China has already ordered banks twice this year to increase the proportion of deposits they must hold in reserve, rather than lend out, in order to gently slow the red-hot economy and nip inflation in the bud.
But, unlike Australia or Malaysia, the central bank has yet to increase interest rates, leaving investors anxious for clues as to how rapidly it might withdraw the extraordinary monetary stimulus it has provided since late 2008 to prop up the world's third-largest economy.
“In order to be consistent with the relatively easy stance, the policies will be better targeted and more flexible,” the PBOC said in a statement issued ahead of a news conference on the sidelines of the annual session of parliament.
“A variety of monetary policy instruments will be employed, and the mix and maturity structures of these instruments as well as strength of operation will be properly arranged,” the English-language statement said.
The PBOC said it would ensure the banking system had adequate liquidity but said it would lean on banks to lend at a regular, even rhythm.
“Financial institutions will be guided to pace credit extension in a balanced manner to prevent excessive fluctuations between quarters and at the end of each month,” the PBOC said.
International cooperation
The statement broke no new ground on the issue of the exchange rate of the yuan, also known as the renminbi (RMB).
To the dismay of Washington and Brussels, China has frozen the yuan's exchange rate at around 6.83 per dollar since mid-2008 to preserve the international competitiveness of its exporters.
But the PBOC merely restated the policy set out on Friday by Premier Wen Jiabao in his annual report to parliament.
“The formation mechanism of the RMB exchange rate will be further improved to keep the exchange rate basically stable at an adaptive and equilibrium level,” the statement said.
The PBOC said it would promote regional currency and financial cooperation and step up coordination and communication with other central banks, particularly on major policy issues.
“This includes continuing participation in the G20 financial summit, in the G20 meeting of finance ministers and central bank governors, and in regular high-level strategic dialogues, including the Sino-U.S. Strategic and Economic Dialogue.”
The Group of 20 advanced and developing economies, of which China is a member, is supplanting the Group of Seven industrial nations as the premier global economic policy forum.
The PBOC reaffirmed its goals of making the International Monetary Fund more representative and of working towards a more diversified international monetary system.
PBOC Governor Zhou Xiaochuan caused a stir last March by proposing that the Special Drawing Right, the IMF's in-house unit of account, might eventually displace the dollar as the world's main reserve currency.
Commerce Minister Chen Deming said it might take two to three years for China's exports to recover to the level reached before the global financial crisis struck in 2008.
Exports plunged 16 percent in 2009 and, to help them rebound, the ministry pledged in a statement to maintain stable export policies, including rebating tax on goods shipped overseas.
China has gained market share during the global downturn, drawing fire from critics who say Beijing is giving its exporters an unfair helping hand by holding down the value of the currency and other inputs such as land.
But Chen told a news conference that China's stimulus policies, including measures to boost exports, had helped the broader global economy and were in line with World Trade Organisation rules.


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