Exchange rate kept stable against all odds
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China had "good reason" to depreciate its currency during the global financial crisis as exports fell and chose instead to keep the yuan stable, central bank Deputy Governor Zhu Min said.
"We took the same policy as we did in the Asian financial crisis; we decided to stabilize the renminbi exchange rate," Zhu said at a forum in Beijing yesterday. Exchange rates aren't likely to play a "key role in rebalancing" the global economy, he said.
The People's Bank of China has kept the renminbi effectively pegged to the US dollar since July last year. Premier Wen Jiabao last month rebuffed Europe's calls for the currency to strengthen.
"Policymakers have kept the yuan stable mainly out of consideration for China's exports and jobs," said Zhao Qingming, a Beijing-based senior analyst at China Construction Bank Corp. "The yuan's dollar peg will be shifted to a currency-basket link in the second half of next year as China's economy recovers, and the dollar may rebound."
Twelve-month non-deliverable forwards fell to 6.6555 per dollar as of 9:30 pm in Hong Kong yesterday, indicating traders expect the yuan to strengthen 2.6 percent in a year, according to data compiled by Bloomberg. In the spot market, the yuan traded at 6.8276 from 6.8275 on Tuesday, according to China Foreign Exchange Trade System.
China's exports may slide about 16 percent this year, Zhu said. The decline in overseas shipments has put "tremendous pressure" on jobs and production in the world's third-biggest economy, he said.
In that sense, there had been "good reason for China to depreciate the renminbi", Zhu said.
Exports rose 1.4 percent in November from a year earlier, the first gain since October 2008, after dropping 13.8 percent the previous month, according to the median estimate of economists surveyed by Bloomberg.
A stable yuan is important for the world's economic recovery, Zhu said, echoing Wen's comments to European officials on Nov 30.
