China Had ‘Good Reason’ to Depreciate Yuan, Zhu Says (Update2)
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By Bloomberg News
Dec. 9 (Bloomberg) -- 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 today. 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, or yuan, effectively pegged to the U.S. dollar since July last year and Premier Wen Jiabao last month rebuffed Europe’s calls for the currency to strengthen. David Dollar, the U.S. Treasury’s economic emissary to China, said at the same forum he agrees with the International Monetary Fund that a “stronger Chinese currency makes Chinese people richer and encourages consumption.”
“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 country’s second-largest lender. “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 0.2 percent to 6.6560 per dollar as of 11:50 a.m. in Hong Kong, 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 yesterday, according to China Foreign Exchange Trade System.
‘Tremendous’ Pressure
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 before a report this week.
A stable yuan is important for the world’s economic recovery, Zhu said, echoing Wen’s comments to European officials on Nov. 30.
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
Last Updated: December 9, 2009 01:19 EST
