China Ready to End Dollar Peg
Source: Telegraph, Garry White (3/8/10)
"changes would be gradual"
At the annual session of the legislative National People's Congress in Beijing, Zhou Xiaochuan, governor of the People's Bank of China, said that the days of the "special yuan" policy were numbered. He described the dollar peg as a "temporary" response to the global financial crisis, but gave no timescale for any change in policy. The currency has been pegged at about 6.83 yuan per dollar since July 2008.
Many economists expect China to allow the yuan to appreciate slightly this year, but the cautious tone by Zhou means that any change may not happen for some time. He said that the central bank would maintain the "basic stability" of the currency. So, despite the fact that the Chinese economy grew by 10.7% in the fourth quarter of last year, the country's loose monetary policy looks set to continue.
"If we are to exit from irregular policies and return to ordinary economic policies, we must be extremely prudent about our choice of timing," Zhou said. "This also includes the [yuan] exchange rate policy."
China's currency policy has been subject of fierce debate, particularly in the US and Europe, with the country's central bank accused of keeping the yuan artificially low to promote a domestic exports boom.
An artificially lower currency makes the country's goods and services more competitive, leaving other exporters at a disadvantage. Jim O'Neil, Goldman Sach's chief economist, thinks the Chinese should allow their currency to appreciate by as much as 5%.