Chinese hint at stronger yuan

CHINA’S CENTRAL bank yesterday acknowledged the case for a stronger yuan, days ahead of the arrival in Beijing of President Barack Obama for talks expected to highlight mounting international concern over Chinese currency policy.

The People’s Bank of China (PBoC) said foreign exchange policy would take into account “capital flows and major currency movements”, a reference to the large speculative inflows of capital that China is receiving, and US dollar weakness.

The bank’s new wording, included in its quarterly report on monetary policy, follows growing global pressure for China to strengthen its currency, particularly from the EU and Japan.

The International Monetary Fund said at the weekend the yuan, effectively re-pegged to the dollar in the middle of last year after being allowed to appreciate by about 20 per cent against the greenback since 2005, was “significantly undervalued”.

The Chinese central bank’s comments contrast with the views of commerce minister Chen Deming, who called at the weekend for a stable exchange rate to “create stable expectations” for exporters.

The comments by the minister, who is responsible for trade, may indicate that the central bank’s position has yet to gain support at top levels of the government.

Economists said the new wording from the central bank would give it more flexibility but did not necessarily mean the government would shift policy soon. Few economists expect China to abandon its effective dollar peg before the middle of next year.

Meanwhile, in Tokyo yesterday, US treasury secretary Tim Geithner reiterated his belief in the importance of a strong dollar.

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” he told reporters.

Weakening of the dollar, which yesterday dropped to a 15-month low on a trade-weighted basis, has led to concern over its role as the global reserve currency.

The PBoC’s statement coincided with the release of a slew of new data indicating that China’s economic recovery accelerated last month. – Copyright The Financial Times Limited 2009