BEIJING — China will press ahead with currency overhauls to allow more flexibility in the renminbi’s exchange rate, while maintaining a relatively steady value, a senior central bank official said Wednesday.
The comments from Yi Gang, who reiterated an assertion that the central bank — the People’s Bank of China — had reduced intervention in the foreign exchange market, emphasize the stability that Chinese policy makers want to ensure, even as they try to turn the renminbi into a more freely traded currency.
“We will continue to reform and open up. I’m confident that the renminbi exchange rate will be more balanced and flexible and basically stable,” Mr. Yi said on the sidelines of the annual meeting of the National People’s Congress.
“The renminbi exchange rate is closer to its equilibrium,” added Mr. Yi, who is a deputy governor at the central bank and also head of the State Administration of Foreign Exchange, China’s foreign exchange regulator.
Official remarks that the renminbi is near its equilibrium contrast with data this week suggesting that demand for the currency may be rising again as China recovers from its economic slowdown in 2012, the worst in 13 years.
The renminbi hit a seven-week high Wednesday, a day after data from the People’s Bank of China showed the central bank and commercial banks in China had bought a record 683.7 billion renminbi, the equivalent of $109.9 billion, worth of foreign exchange in January.
Economists say the purchase indicates capital is flowing back into China, although the central bank’s governor, Zhou Xiaochuan, played down the idea Wednesday.
“You can’t draw any conclusions from one month’s data. The volume every day is very high,” said Mr. Zhou, also speaking on the sidelines of China’s parliamentary session. “Sometimes there is more demand for renminbi and sometimes for foreign exchange.”
Large purchases of foreign currency by China’s central bank and commercial banks amount to base money creation and can fuel inflation in the country unless the People’s Bank of China soaks up the excess renminbi injected into the system. Mr. Yi said China would use open market operations to mop up excess cash stemming from foreign exchange inflows.
The foreign exchange committee said last month that China faced greater risks as capital flowed rapidly in and out of the country this year against a backdrop of economic uncertainty worldwide.
Ting Lu, an economist at Bank of America Merrill Lynch, said the record purchases of foreign currency in January showed pent-up demand for the renminbi as confidence in the Chinese economy rebounded.
But Mr. Lu said he did not think such large purchases would be sustained, as the central bank has signaled that there is little room for the renminbi — also known as the yuan — to rise.
“The room for further yuan appreciation against the dollar is limited, as is signaled by the People’s Bank of China’s recent interventions,” he said.
Despite the central bank’s declarations that it has reduced its foreign exchange interventions, currency dealers say they still spot aggressive buying or selling of dollars by the authorities.
China’s central bank wants to turn the renminbi into a convertible, or less controlled, currency that becomes a major medium of exchange in global commerce and one day would rival the dollar as an investment in government reserves.
Article source: http://www.nytimes.com/2013/03/07/business/global/china-promises-flexibility-on-renminbi.html?partner=rss&emc=rss