World Bank urges flexible yuan

| June 18, 2010 | 0 Comments
World Bank urges flexible yuan

China is still under pressure to allow its currency, the yuan, to find its own level, in order to ease inflation and to prevent the economy from overheating.

The World Bank is now urging the Chinese Government to allow the yuan, which is also referred to as the renminbi, to strengthen 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.

Trade talks with the US last month led China to say it would seek “gradual progress” on reforming the exchange rate of the yuan.

However, no timetable for the exchange rate reform was given.

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

However, according to the World Bank, a stronger yuan would help to ease inflation and encourage domestic consumption in China.

It also believes the central bank should raise interest rates, another method of avoiding inflationary pressures.

The World Bank said: “More exchange-rate flexibility would make monetary policy more independent.” This would allow China “to raise interest rates even when interest rates in high-income countries remain low.”

So far, the Chinese Government has not lifted interest rates to cool economic growth, instead it has introduced measures such as limits on bank lending.

The Chinese economy, which is the world’s third largest, expanded at an annualised rate of 11.9% in the first three months of the year.

Economists have cautioned that the economy is expanding too quickly and there are risks of overheating - property prices, in particular, are increasing at an alarming rate.

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