China to maintain managed floating exchange rate regime
Further reform provided 'a great deal of potential for future benefits'
China will maintain a managed floating yuan exchange rate regime, the country's central bank said yesterday, asserting that such a policy was in the nation's long-term interests.
"The regime is essential for economic restructuring and the optimisation of resource allocation," vice governor Hu Xiaolian said in a speech posted on the central bank's website.
The People's Bank of China pledged last month to loosen its grip on the yuan exchange rate and allow the currency to trade more freely against the dollar, albeit within a tight band.
The yuan had been effectively pegged at 6.8 to the dollar since mid-2008. An English version of Mr Hu's speech appeared on the central bank's website at the same time as the Chinese - an unusual move that could signal Beijing is trying to reach out to critics of its controversial exchange rate policy.
It was not clear where or when Mr Hu delivered the speech.
Policymakers would continue to improve the exchange rate system, Mr Hu said, adding that further reform provided "a great deal of potential for future benefits".
However, steps would need to be taken to "minimise possible negative impacts" from further changes to the currency, said Mr Hu, apparently referring to exporters, who would be vulnerable to a stronger exchange rate.
The yuan has appreciated 0.8 per cent against the greenback since the central bank's June 19 pledge to relax currency controls, well short of critics' demands.
A stronger yuan will make Chinese shipments of electronics, clothes, shoes and other goods more expensive, but help boost domestic consumer spending by reducing the cost of imported products.
Mr Hu said the announcement last month was an "important move" in reforming the country's foreign exchange regime and would help ensure financial market stability and "quality and rapid growth of the economy".
The remarks came after data released earlier yesterday showed China's economy slowed in the second quarter as authorities scaled back stimulus measures used to combat the global financial crisis, including the yuan exchange rate.
"These measures help facilitate China's economic development and foster a favourable international economic and trade environment," said Mr Hu.
US lawmakers have led a chorus of criticism of the exchange rate policy, arguing the yuan is undervalued by as much as 40 per cent against the dollar, giving Chinese producers an unfair trade advantage.
Early this month, the US Treasury Department avoided labelling China a currency manipulator in a much delayed report to Congress but maintained that the yuan was still too cheap.
The European Central Bank yesterday urged China to let the yuan appreciate in value against other currencies, saying it could help the fast-growing economy manage a "soft landing".