CHINA HAS begun to publicly prepare the ground for a shift in exchange rate policy, days after the US treasury said it would postpone a decision on whether to name China a “currency manipulator”.
A senior government economist told reporters in Beijing yesterday that China could widen the daily trading band for the renminbi and allow it to resume the appreciation it halted in July 2008 in response to the global credit crisis.
Ba Shusong, deputy director-general of the Financial Research Institute at the Development Research Centre, the cabinet’s think tank, said the timing of any shift depended on the pace of economic recovery in the US and China. Mr Ba said the current peg was a temporary emergency measure that would be abolished at some point.
In recent months, Wen Jiabao, China’s premier, and other senior officials have repeatedly said the renminbi was not undervalued and China would not bow to foreign pressure over its value. But the official tone has moderated, with Chinese officials suggesting privately that a proposal to adjust currency policy had been submitted to the cabinet for approval.
Both sides have made conciliatory gestures following months of strained relations, with the US delaying a decision on China as a “currency manipulator” and Beijing moving diplomatically with Washington on Iran and nuclear security. “Some grand bargain between the US and Beijing appears to be in the works if it hasn’t already been struck,” said Stephen Green, an economist at Standard Chartered in Shanghai.
Tim Geithner, the US treasury secretary, told India’s NTV in New Delhi yesterday it was “China’s choice” whether to revalue the renminbi and was confident that Beijing would see that a more flexible currency was in its own interest.
Goldman Sachs predicts Beijing will widen the daily trading band within which the renminbi fluctuates against the dollar to plus or minus 1 per cent and allow it to gradually rise.The foreign ministry said yesterday China would adhere to three principles: any change must be controlled; it must be Beijing’s own initiative; and any shift must be gradual.
Despite assertions the renminbi is not undervalued, most Chinese economists acknowledge it is likely to strengthen over the long term. – (Copyright The Financial Times Limited 2010)
