Experts Say: 2017-03-13

Zhou Xiaochuan - Head of the Central Bank of China

Differences in monetary policies between China and US do not significantly affect the yuan

Short description: The differences in monetary policies between China and the US do not have a significant impact on the yuan's exchange rate to other currencies, as indicated by the Head of the Central Bank of China (People's Bank of China) Zhou Xiaochuan.

"The yuan's exchange rate is affected by the short-term manipulation,” said the Head of the People's Bank of China. "However, in the medium term, the main impact factor is the situation in the Chinese economy," continued Zhou Xiaochuan.

In 2016, the US Federal Reserve raised the key interest rate. The Chinese analysts hold the opinion that this decision has became one of basic reasons of the yuan's cheapening against dollar.

Zhou Xiaochuan has expressed confidence that the RMB's exchange rate will be stable in 2017.

"The election of Donald Trump as the new US president also triggered a rise in the US dollar index, affecting the exchange rate of the Chinese RMB," noted Zhou Xiaochuan.

"I am certain that, given a stable and more healthy development of the Chinese economy… the rate will naturally tend toward stability. We are also not planning any major policy changes in this regard, but we will be more careful in terms of restraining. Under these conditions, we are certain that the yuan's exchange rate will be relatively stable this year," Zhou stated.

In August 2015, the Central Bank of China announced the decision to optimize the methodology for calculating the exchange rate to increase the role of the market factors, taking into account the positive balance in China's foreign trade, as well as the strong position of the yuan's exchange rate against the currencies of other countries. Exchange rate fluctuations against the official parity rate set by the People's Bank should not have exceeded 2%. In 2016, the RMB's exchange rate fell by 6.8% to the dollar.

“The reduction in the PRC's foreign exchange reserves was due to a natural pattern,” added Zhou Xiaochuan. According to the head of the regulator, the main reason was the outflow of

"A large amount of speculative capital has arrived in China. As growth recovered in other countries, the capital outflows began both from China and a number of other developing countries: Russia, Brazil, India, etc. All of them are facing this trend," the banker said. - In such a situation, the reduction of foreign exchange reserves is natural, this is a natural pattern, it is not a bad thing. Reserves should be used, not looked at."

“The current $3 trillion foreign exchange reserves level is adequate for China to maintain financial stability. In the field of monetary policy, we adhere to a moderate approach,” said Zhou Xiaochuan.

"There are issues that should be resolved, but there is no need to look at them too pessimistic," the Chinese official summed up. Yi Gang, vice-governor of the bank, added, the use of foreign exchange reserves made it possible to ensure the stability of the yuan.

Published: 2017-03-13
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