China yuan move an 'initial' step - PBOC head
today.reuters.co.uk
Sat Jul 23, 2005 11:16 PM BST
By Scott Hillis
BEIJING (Reuters) - The head of China's central bank on Saturday described this week's revaluation of the yuan as an initial step whose benefits outweighed its drawbacks.
"We made an initial 2 percent adjustment of the exchange rate level," Zhou Xiaochuan, the governor of the People's Bank of China, told state television.
He said the central bank would adopt a gradual approach to reform of the country's exchange rate regime.
"China's overall buying power has been increased, the currency is stronger and has more value. The positive effects on the economy will be much, much greater than the negative effects," Zhou said.
Zhou spoke two days after China revalued the yuan, or renminbi, by 2.1 percent in a long-anticipated move.
At the same time, China scrapped the currency's decade-long peg to the dollar and replaced it with a system under which its value will be managed with reference to a basket of currencies.
Economists have since been feverishly debating how quickly the central bank would make use of the new flexibility to push the yuan even higher.
Earlier on Saturday, Zhou said the revaluation would help smooth out global trade imbalances but will not have a big impact on America's trade deficit.
"After the change in the exchange rate, export companies should probably increase their prices. That can help correct imbalances in global trade in an orderly way," Zhou told a banking conference.
'SMALL IMPACT ON U.S.'
Zhou said China had made the shift not because of foreign pressure but because it would promote China's long-term growth and stability.
Beijing had decided against a larger move of 5 percent partly out of concern that cheaper imports would squeeze domestic firms and trigger deflation, a state newspaper said.
A 5 percent revaluation would shave 1.4 percentage points off of China's economic growth and bring consumer inflation down 1.4 percentage points, the China Business newspaper said, citing a source familiar with government studies of various scenarios.
China's second quarter GDP grew 9.5 percent from a year earlier while annual consumer inflation was 1.6 percent in June.
Zhou told the conference that China had dropped the dollar peg because the U.S. currency had become too volatile in recent years, partly reflecting economic problems include large trade and budget deficits.
The central bank chief offered the same analysis as Federal Reserve Chairman Alan Greenspan that the currency shift would not make much difference to the U.S. trade deficit, which hit a record $617.6 billion (355 billion pounds) last year.
The bilateral deficit with China was $162 billion.
"The renminbi revaluation will help the U.S. trade deficit but the effect will be extremely small because the U.S. economy is so huge," Zhou said. China's economy was just on-seventh the size of America's, he said. |
