Foreign Exchange News
- Gradual yuan rise best for China: adviser
Date: 8-Feb-2007 Sources: (Shenzhen Daily)
A MODEST, gradual appreciation of the yuan is in China's interest, Fan Gang, an economist who sits on the monetary policy committee of the People's Bank of China (PBOC), said yesterday.
In a Web cast, Fan said he expected China's trade surplus to drop in 2007 from last year's record US$177.47 billion.
He also expressed optimism that China's economy would stay on a stable and steady path but said a slowdown in GDP growth to around 9.5 percent would be for the best after four consecutive years of double-digit expansion.
The yuan was revalued by 2.1 percent against the U.S. dollar in July 2005 and untethered from a dollar peg to float within managed bands. Since then, it has risen almost 4.7 percent.
'I personally still insist on a modest, gradual rise in the yuan. Although the exact pace could differ, say 4.7 percent or 5.1 percent a year,'Fan said.
To hold down the exchange rate, the PBOC buys most of the dollars generated by China's balance-of-payments surplus and issues yuan that it then has to mop up through increasing banks' required reserves and selling bills.
These open market operations are huge, but Fan said the PBOC could afford the cost of issuing bills because they yield less than the returns it gets on its foreign currency investments.
Restating his long-held view, Fan said the dollar was likely to keep depreciating and he said China was not to blame for the imbalances in the global economy. Rather, the root cause was America's budget deficit and low savings rate, he said.
Among other comments, Fan said China should adopt a gradual approach to opening its capital account in order to fend off potential risks.
'We still need a fire wall in terms of capital account controls because there are many great possible risks,'he said.
He declined to comment on whether China needed to raise interest rates, but said that the general public should learn to view any such changes as a normal way of fine-tuning the economy.
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