Henry Tang urges mainland authorities to adopt better communication, transparency on exchange rate policy
Henry Tang Ying-yen, one of several candidates who staged an unsuccessful run for Chief Executive in 2012, has urged mainland authorities to improve communication and enhance transparency on currency related issues in order to reduce market volatility and strengthen confidence in the yuan.
“This would lessen the possibility of violent market reactions to adjustments to the system and to policy as the reform process continues and policy making attains sophistication,” said Tang, who is also a Chinese People’s Political Consultative Conference standing committee member.
He noted currency market volatility of late, saying that China had become the focal point for “substantial” capital outflows during the past year, which triggered intervention on the foreign exchange markets in an attempt to stabilise the yuan. Those efforts by the PBOC led to a drop in China’s foreign reserves, which totalled US$3.3 trillion at the end of January, down from nearly US$4 trillion in mid 2014.
Tang said the negative sentiment towards the yuan was “highly irrational.”
“With a large current account surplus, an economic growth rate that is much faster than that of developed markets, a low unemployment rate and a stable inflation rate at just less than 2 per cent, the macroeconomic performance of China is an envy to many in the rest of the world,” he said.
“I simply do not see significant sources for weakness in the yuan exchange rate. With proactive and authoritative communication with the market, irrational market behaviour can be avoided,” he said in the proposal.
The yuan has depreciated about 4.4 per cent against the US dollar since the middle of last year.
Tang urged authorities to disclose more information about the make up of the basket of currencies comprising the exchange rate index, as well more detail about how the PBOC calculates the daily reference rate for the yuan.
“Transparency enhances policy credibility, dampens market volatility and strengthens confidence in the currency,” Tang said.
He also identified nine points where authorities should take a more robust approach in tackling market manipulation.
“Financial market participants, particularly the market makers, love volatility, given the opportunities presented for making money, to the extent that they are prone to engage in misconduct or at least doubtful behavior,” Tang said.
“These should be decisively contained, if not stamped out,” he said, “Free markets are not markets that can be freely manipulated.”