PBoC to keep exchange rate ‘basically stable’

An employee counts out 100 yuan notes at a bank in Shanghai. The future trend of the exchange rate will be decided by supply and demand, as well as changes in international financial markets, Liu Guoqiang, vice governor at the People’s Bank of China, has said.

China’s central bank has said it will maintain the exchange rate of the yuan at “basically stable” levels after recent comments by its officials who suggested the currency be allowed to appreciate and authorities should eventually let up on controlling it. The future trend of the exchange rate will be decided by supply and demand, as well as changes in international financial markets, Liu Guoqiang, vice governor at the People’s Bank of China, said in a Q&A segment posted on the bank’s website. The yuan will be kept at reasonable and balanced levels, he said. The existing floating exchange rate regime is a suitable arrangement for China for now and ”a period of time in the future,” Liu said, without elaborating. His comments came after a PBoC official said the country should let the yuan appreciate to offset rising costs of commodity imports. China is hurt by a rally in global commodity prices, according to central bank researcher Lyu Jinzhong, in an article published Friday in PBoC magazine China Finance. Separately, Zhou Chengjun, director of the central bank’s finance research institute, said China has to give up its control over the currency’s exchange rate eventually if it wants to achieve greater global use of the yuan. Zhou added that the PBoC has made it clear it stopped regular intervention and will let the market play a bigger role in deciding the exchange rate. Zhou’s comments, made at a forum on April 16, was published by the organiser on Wednesday. ‘Digital yuan won’t replace dollar’ China has never aimed to challenge the US dollar’s status as the international reserve currency with the development of a digital yuan, Xiaochuan Zhou, former governor of the People’s Bank of China, said during a forum at Tsinghua University in Beijing on Saturday. Zhou said the development of a digital yuan may help facilitate usage of the currency in cross-border payments, but China has never intended to replace the US dollar as the preferred international payment currency, reports Bloomberg. A digital yuan should not be linked intimately to the concept of the currency’s internationalisation, which in fact depends more on the opening-up of financial policies and reform of the financial system, rather than on technology, Zhou said. Also, the digital currency electronic payment system has been jointly developed by commercial banks, telecoms companies and several major third-party payment companies, and is not meant to fulfil the role played by third-party payments. “We are in the same boat,” Zhou said. China is likely to be the first major central bank to issue a digital version of its currency, seeking to keep up with – and maintain control of – a rapidly digitising economy. Trials and tests are underway in several cities, including Hong Kong, which is in talks with China to expand cross-border testing of the digital yuan. Unlike cryptocurrencies such as Bitcoin, the digital yuan won’t have any presumption of anonymity and its value will be as stable as the physical yuan.