BEIJING - China and the United States have reached consensus on many key and important issues, including a commitment to adhere to a market-oriented foreign exchange mechanism, China’s central bank governor Yi Gang said on Sunday (March 10).
Both countries will also respect the autonomy of each other’s monetary policy and have agreed not to engage in the competitive devaluation of their currencies, Mr Yi said at a press conference on the sidelines of China’s annual parliamentary meeting.
The US has asked China to keep the value of its currency stable as part of the ongoing trade talks. This is to prevent Beijing from devaluing the yuan to make Chinese exports cheaper to counter the effects of the US tariffs.
The world’s two largest economies are engaged in negotiations to end an eight-month-long trade war, which saw both sides slapping tit-for-tat tariffs on hundreds of billions of dollars of goods.
Mr Yi stressed that China will “never use the exchange rate for the purpose of competition”.
“Nor will we use the exchange rate to increase China’s exports or consider using it as a tool in the trade dispute (with the US). This is our commitment to never do this,” he told reporters.
Flanked by his three deputies, Mr Yi took several questions on the issue of the yuan, including one on the US’ accusation that China is a currency manipulator.
He said China’s efforts to maintain the basic stability of the yuan at a “reasonable and balanced” level have been “widely recognised by the world”.
In the past three to four years, the yuan has faced persistent devaluing pressures and Beijing has used all means available to address that, including burning through US$1 trillion (S$1.36 trillion) worth of foreign reserves, he noted.
“In talks with our major trading partners and during our discussion with experts, everyone is fully aware of the issue,” he said.
Mr Yi, who is part of China’s negotiating team in the trade talks with the US, described the discussion on the yuan exchange rate as “very meaningful”.
“China’s exchange rate mechanism is one determined by the market... and the renminbi (yuan) is moving towards becoming a freely usable currency,” he said, adding that it will be more and more convenient for the public, firms and investors to use the Chinese currency in the future.
There will be more consensus between both countries in future discussions on this issue, he said without further elaboration.
Amid a slowing economy, all eyes are also on whether China will further ease its monetary policy to help stimulate growth.
To this, Mr Yi stressed that the “prudent” monetary policy stance has not shifted even as the central bank looks to do more to support smaller firms in getting loans.
China has cut the required amount of cash held by the banks five times since January last year to free up more funds for bank lending to stimulate the economy.
Mr Yi said that while the required reserve ratio has been cut by a total of 3.5 percentage points, there is still room for further cuts, albeit not as much as in previous years.
China’s deleveraging efforts in the past year saw its total debt to gross domestic product ratio dip by 1.5 percentage points to 249.4 per cent in 2018 compared with the previous year.