China must give up control of yuan exchange rate to achieve internationalisation, central bank official says

Zhou Chengjun, director of the People’s Bank of China’s (PBOC) Finance Research Institute, says the rate has to be determined by global market participants

China’s central bank has already made it clear that it has stopped regular intervention and will let the market play a bigger role in deciding the exchange rate

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Zhou Chengjun cited the fact the yuan has weakened past 7 per US dollar – previously seen as an important psychological threshold – in the past two years, and said it is one of the more volatile major currencies in the world. Photo: Reuters

Published: 1:15pm, 20 May 2021Updated: 9:42am, 24 May 2021

China has to give up its control over the currency’s exchange rate eventually if it wants to achieve greater global use of the yuan, according to a central bank official.

The yuan exchange rate will have to be determined by global market participants, and this will allow China to have free cross-border capital flows and pursue an independent monetary policy, Zhou Chengjun, director of the People’s Bank of China’s (PBOC) Finance Research Institute, said in a speech published Wednesday.

“We need to admit that under the condition of yuan internationalisation, we won’t be able to control the exchange rate, and China’s central bank has to let go of exchange-rate goals in the end,” said Zhou. He made the comments at a forum on April 16, according to a transcript released by the forum organiser.

The PBOC has made it clear it has stopped regular intervention and will let the market play a bigger role in deciding the exchange rate, Zhou said.

He cited the fact the yuan has weakened past 7 per US dollar – previously seen as an important psychological threshold – in the past two years, and said it is one of the more volatile major currencies in the world.