G-20 Sets Yuan Policy Aside
Normally in the cross-hairs, China’s exchange-rate policy received a free pass as Europe’s debt crisis took center stage when the Group of 20 met over the weekend in Mexico City. From The Wall Street Journal:
While capital flows and currency policy are still on the table at the G-20, they’ve “lost some prominence given the focus on the euro-area crisis,” said Paulo Nogueira Batista, Brazil’s executive director at the International Monetary Fund
The official statement from the G-20 finance ministers and central bankers on Sunday didn’t discuss foreign exchange issues at all.
Instead of censuring China for its yuan policy, as he consistently has in previous G-20 meetings, U.S. Treasury Secretary Timothy Geithner over the weekend praised Beijing’s economic reforms and the 40% appreciation of the yuan against the dollar since 2005.
“China has played I think a really responsible, stabilizing role, despite its relative newcomer status,” Geithner said at a banking conference alongside the G-20. “There’s been a dramatic change in the organization and structure of the economy towards domestic demand,” he said. He said later in the weekend that currency appreciation is still in China’s interest.
In a statement over the weekend, People’s Bank of China adviser Li Daokui said that the yuan would likely move both ways before reaching an appropriate level in the next 18 months. From The People’s Daily:
“The yuan exchange rate will undergo gradual adjustment for one year to a year and a half before it can stabilize. In other words, the yuan may be able to fluctuate in both directions until then,” the China Securities Journal quoted Li as saying yesterday.
The yuan has gained nearly 30 percent since China broke its peg to the US dollar in 2005. Li said the yuan is now close to a balanced level and China’s trade surplus is likely to fall below 1 percent of its gross domestic product this year. The yuan gained 0.02 percent this week to close at 6.2978 yesterday, according to the China Foreign Exchange Trade System. Li said his estimation was based on relatively steady growth in China and around the world.