China’s central bank will keep yuan stable

| June 20, 2010
China’s central bank will keep yuan stable

China’s central bank has refused to bow to pressure to allow its currency, the yuan, to find its own level, after the bank’s website said: “There is at present no basis for major fluctuation or change in the [yuan] exchange rate”.

The country’s currency policy has been widely criticised and its comments come just 24 hours after the central bank said it would make the exchange rate more flexible.

China has been under pressure to allow its currency to find its own level, in order to ease inflation, prevent the economy from overheating, as well as encouraging domestic consumption in China.

In particular, the US has expressed dissatisfaction that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Last week, the World Bank joined other commentators by saying that the yuan, which is also referred to as the renminbi, should be strengthened against other international currencies.

US legislators and trade groups have previously said the yuan is kept up to 40% below what its value should be against the US dollar.

China has previously said that keeping the yuan stable is “an important contribution” to global recovery.

The Chinese currency pegged the US dollar until 2005 when it was allowed to rise in value by about one fifth.

The peg was reinstated in July 2008 when the global financial crisis took hold, amid US concerns of the impact on trade.

The yuan has stayed at around $0.147 since that time.

Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong, comments: “A stronger yuan would not only help prevent trade tensions from developing later in the year, but, more importantly, would help to keep China’s recovery on a sustainable path and to rebalance its economy”.

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