Here is Chinese version (and some of the translation by me) of Zhou XiaoChuan's speech at a national conference of bankers in Beijing on July 23rd. This is his first public comment.
finance.sina.com.cn
Have not seen any English version yet, so I translate the main points.
Four main points:
1. Zhou compared the RMB exchange rate referenced against a Basket of currencies to a student's grade. One needs to compare the average grade in the class and neighbors to decide whether this particular student's grade is good. (My note: This "particular student" here means RMB floating rate.)
When gold price is stable, people peg their currency to gold. And then people peg to US$ because US$ was relatively stable. But in the recent years, US$ becomes unstable, Euro instead becomes a new strong currency.
US economy has its own problem, i.e. twin deficit. So they need to have some adjustment too. US$ is already not a single strong currency any more.
China has big trade volume with the US, but the US is not the only major trade partner of China. So we need to have a good stable reference system to decide the exchange rate bet. RMB and US$. If there is no such system, then we need to establish one or need to adjust the old one.
Basically, this new exchange system is to base on the changing of the market change.
2. We should be prepared for any international financial crisis. Floating system has more flexibility than a peg system.
In a currency attack, pegged system is like a fixed shield. Because once the shield moves, it will expose the weak point so the attacker would take advantage of it. Floating system is like a elastic foam. Currency attackers can come in, but do not know where to hit. And when currency attackers withdraw, we can set some trap for them. This is just like a guerrilla war. So floating system has better defence and counter attack ability.
3. Floating system requires more flexibility in micro economy. So Chinese companies should readjust themselves and position themselves better according to the market need.
4. Floating system requires Chinese enterprises to adjust their pricing system. It is true that exporters' profit will decline if the price remain stable. So under certain circumstances, exports should consider to raise price to increase the profit.
Note: the translation is NOT verbatim, but the meanings are all there. |
