China will not use the exchange rate as tool amid trade frictions, says central bank governor Yi Gang

China's central bank governor Yi Gang said China's monetary policy would remain neutral with more focus on guiding expectations.
China's central bank governor Yi Gang said China's monetary policy would remain neutral with more focus on guiding expectations.PHOTO: REUTERS

NUSA DUA, Indonesia (Bloomberg, Reuters) - China won’t use its currency as a tool to deal with trade conflicts, central bank governor Yi Gang said, as a tariff war between the US and the world’s No. 2 economy intensifies.

“China will continue to let the market play a decisive role in the formation of the RMB exchange rate,” Yi said in a statement to the International Monetary and Financial Committee, which was posted on the IMF’s website on Saturday (Oct 13) during the IMF and World Bank annual meetings in Indonesia's resort island of Bali.

“We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.”

He added China will continue to push ahead with the market-based reforms of its interest rate and exchange rate systems, and keep the currency “broadly stable at an adaptive equilibrium level”.

Monetary policy is expected to remain neutral with more focus on guiding expectations, the governor said.

“Proactive adjustment and fine-tuning are needed to ensure that the monetary stance will remain appropriate” amid a changing economic and financial landscape domestically and internationally, he said.

 

US Treasury Secretary Steven Mnuchin on Saturday (Oct 13) said Chinese officials told him this week that a further depreciation of China’s yuan currency was not in the country’s interest.

Mnuchin also told a news conference he was “not losing any sleep” over the prospect that China could sell US Treasury debt amid rising trade tension between the world’s two largest economies.

“We had productive conversations, and they emphasised to me that it is not in their interest to see the RMB to continue to depreciate,” Mnuchin said at the International Monetary Fund and World Bank annual meetings in Bali.

“And as I’ve said, the currency issue is an important issue for us in trade and will be part of our trade discussions. We want to make sure that depreciation is not being used for competitive purposes in trade.”

The comments come after Mnuchin expressed concern about a weakening of the yuan against the dollar to near levels not seen in a decade, as the Treasury prepares to release a much-anticipated report next week on currency manipulation.

Mnuchin said no decision had been made whether US President Donald Trump would meet Chinese President Xi Jinping at the G-20 leaders summit in Argentina at the end of November. No formal talks to try to resolve the US-China trade dispute have taken place since Aug. 23.

“To the extent that we can make progress towards a meeting, I would encourage that, and that’s something that we’re having discussions about. For the moment, there’s no preconditions, the President will decide on that.”

Mnuchin said he was not concerned that China’s holdings of US$1.17 trillion could be sold amid trade tension.

“The Treasury market is very liquid. This has never come up in any of our discussions whatsoever. I hope they think it’s good to hold US assets and US dollars and US Treasuries.”

Mnuchin also reiterated his support for an independent Federal Reserve, despite President Trump’s persistent criticism of Fed rate hikes.

He said he would not comment on Fed policy, but added that it was Trump’s “prerogative” to express his views on US interest rates.

“The President has made clear that he’d like lower rates, as opposed to higher rates, and that he’s concerned that if the Fed raises rates too quickly, that could have an impact on our growth,” Mnuchin said, adding that he saw no inconsistencies between his views and those of the President.