Bank: Big currency swings do harm
By Leo Zhang | 2010-9-18 | NEWSPAPER EDITION
CHINA'S central bank said yesterday that financial stability is essential to economic growth and that big swings in the US dollar would hinder global recovery.
It was China's latest response to growing external pressure on the yuan to rise and came just a day after China's Foreign Ministry rebutted US Treasury Secretary Timothy Geithner's criticism on its currency policy with a warning that more pressure would exacerbate the scenario.
"Large fluctuations in the dollar's exchange rate will impede global economic recovery," said the People's Bank of China in its 2010 financial stability report. "Overall, we still face latent risks and uncertainties on our way to ensure financial stability."
Talking specifically about the dollar, the Chinese central bank noted that a fast depreciation of the US currency could boost commodity prices, lead to asset bubbles and strain economic and financial stability.
And if the dollar were to quickly climb in value, that too would put global capital markets under pressure, resulting in major volatility and affecting economies of resource-producing countries, the report said.
"The central bank's comments reinforce the belief that China won't change its currency policy amid external pressure," said Wu Ke, a Zhongtian Investment Consulting Co analyst.
"There may be a gradual appreciation toward the year-end. But we will definitely see more two-way movements in yuan's exchange rate."
US lawmakers have been amplifying calls for the yuan's appreciation, accusing China of making its currency "undervalued" to give its exporters an unfair advantage.
Geithner said at this week's congressional hearings that the US government plans to adopt every available tool to urge China to pursue a faster currency appreciation.
Chinese Foreign Ministry spokeswoman Jiang Yu said on Thursday that the yuan's appreciation won't solve US trade deficit with China. She added that pressure can't solve the issue.
China revamped its exchange-rate regime in June, linking the yuan's value to more currencies.
Since then, the Chinese currency has gained about 1.4 percent against the dollar with a 0.9 percent rise occurring in the past week.
"The pressure on the yuan won't ease until the US midterm elections in November," said Wu Min, an analyst with China Securities Co.
"As the dollar may keep weaken in the fourth quarter, the yuan will post a slight increase in the medium term," Wu Min said.
China will rev up efforts to let more regions and companies settle cross-border trade in the yuan and boost offshore usage of the Chinese currency, according to yesterday's report.
China will further open its financial markets and create more channels for overseas investors to obtain and use the Chinese currency, the central bank said.
The central bank also noted some other challenges to maintaining financial stability, including a growth in trade conflicts and the uneven timing of developed nations' phase-outs of stimulus policies.
The central bank cautioned that domestic banks must be alert about credit risks because a rebound in domestic demand is not yet solid.
Read more: http://www.shanghaidaily.com/article/?id=449676&type=Business#ixzz104jwAjgT
By Leo Zhang | 2010-9-18 | NEWSPAPER EDITION
CHINA'S central bank said yesterday that financial stability is essential to economic growth and that big swings in the US dollar would hinder global recovery.
It was China's latest response to growing external pressure on the yuan to rise and came just a day after China's Foreign Ministry rebutted US Treasury Secretary Timothy Geithner's criticism on its currency policy with a warning that more pressure would exacerbate the scenario.
"Large fluctuations in the dollar's exchange rate will impede global economic recovery," said the People's Bank of China in its 2010 financial stability report. "Overall, we still face latent risks and uncertainties on our way to ensure financial stability."
Talking specifically about the dollar, the Chinese central bank noted that a fast depreciation of the US currency could boost commodity prices, lead to asset bubbles and strain economic and financial stability.
And if the dollar were to quickly climb in value, that too would put global capital markets under pressure, resulting in major volatility and affecting economies of resource-producing countries, the report said.
"The central bank's comments reinforce the belief that China won't change its currency policy amid external pressure," said Wu Ke, a Zhongtian Investment Consulting Co analyst.
"There may be a gradual appreciation toward the year-end. But we will definitely see more two-way movements in yuan's exchange rate."
US lawmakers have been amplifying calls for the yuan's appreciation, accusing China of making its currency "undervalued" to give its exporters an unfair advantage.
Geithner said at this week's congressional hearings that the US government plans to adopt every available tool to urge China to pursue a faster currency appreciation.
Chinese Foreign Ministry spokeswoman Jiang Yu said on Thursday that the yuan's appreciation won't solve US trade deficit with China. She added that pressure can't solve the issue.
China revamped its exchange-rate regime in June, linking the yuan's value to more currencies.
Since then, the Chinese currency has gained about 1.4 percent against the dollar with a 0.9 percent rise occurring in the past week.
"The pressure on the yuan won't ease until the US midterm elections in November," said Wu Min, an analyst with China Securities Co.
"As the dollar may keep weaken in the fourth quarter, the yuan will post a slight increase in the medium term," Wu Min said.
China will rev up efforts to let more regions and companies settle cross-border trade in the yuan and boost offshore usage of the Chinese currency, according to yesterday's report.
China will further open its financial markets and create more channels for overseas investors to obtain and use the Chinese currency, the central bank said.
The central bank also noted some other challenges to maintaining financial stability, including a growth in trade conflicts and the uneven timing of developed nations' phase-outs of stimulus policies.
The central bank cautioned that domestic banks must be alert about credit risks because a rebound in domestic demand is not yet solid.
Read more: http://www.shanghaidaily.com/article/?id=449676&type=Business#ixzz104jwAjgT