China has made a clear effort to keep yuan exchange rate stable, says central bank
- People’s Bank of China governor Yi Gang says Beijing will not devalue yuan to boost exports or ease trade tensions amid the US-China trade war
- China’s foreign exchange intervention has long been a political target in the United States and Donald Trump vowed to declare China a currency manipulator in 2016
China has made a clear effort over the last four years to maintain a stable exchange rate in the face of sustained downward pressure on the yuan, People’s Bank of China governor Yi Gang said on Sunday.
Yi also said there remains room to cut banks’ reserve requirement ratio, though that room is smaller than it was in the past.
“Since the beginning of 2015, the [yuan] has been facing depreciation pressure from various external and domestic factors,” Yi said during the National People’s Congress meetings in Beijing. “However, facing this depreciation pressure, the Chinese monetary authorities are still trying to maintain the basic stability of the [yuan] exchange rate at a reasonable and balanced level.
“To this end, China’s foreign exchange reserves have been reduced by US$1 trillion, which means that this effort is very clear to the whole world. And our trade partners have been very clear about this during talks [on exchange rate issues].”
The two countries “did discuss the yuan exchange rate issue in the seventh round of trade talks” in Washington last month, Yi said.
He added that the topics included how to respect the autonomy of authorities on each side to decide a monetary policy that was in the best interests of each country’s domestic economy, sticking to the principle of a market-driven exchange rate mechanism, and not engaging in competitive devaluation for commercial advantage.
“We’ve reached consensus on many important issues,” Yi said. “We talked about not engaging in competitive devaluation in compliance with previous G20 commitments and also agreed that both parties should disclose data in accordance with International Monetary Fund standards.”
It is the first time China’s central bank has disclosed details of the China-US trade negotiations involving the yuan exchange rate, following a series of media reports that the US had demanded China agree not to devalue the yuan.
While not directly confirming the reports, Yi said: “China will not use the yuan exchange rate as a tool to boost exports or ease trade frictions.”
The reports generated concerns that China may repeat the experience of Japan, which signed the Plaza Accord, a 1985 currency pact among developed nations to depreciate the US dollar against the yen and Deutschmark, which many analysts argue was a major contributing factor to Japan’s economic stagnation in subsequent years.
In the press conference, Yi tried to make the discussion of the exchange rate appear normal. He said it was not the first time that the two countries had discussed exchange rates, and they have always had close communications on the foreign exchange market.
Yi did give hope to those awaiting further monetary easing steps, saying there was room for a further reduction in the amount of money banks were required to hold in reserve at the central bank.
“Currently, there should be some room to lower the deposit reserve ratio for China, but the space is much smaller than in previous years,” Yi said.
“The total reserve ratio of Chinese banks is about 12 per cent, which is actually similar to the total reserves of developed countries, and this ratio is much lower than that in Japan.”
Yi made clear that a reserve ratio “is still appropriate and necessary” in China given its development stage.
