Yuan's level set by market forces, says PBOC chief

Mr Yi Gang has pushed back against the US' labelling of China as a currency manipulator.
Mr Yi Gang has pushed back against the US' labelling of China as a currency manipulator.

WASHINGTON • China's top central banker said that potential escalation of trade tensions and policy uncertainty were the major risk factors facing the world economy, and market forces were keeping the yuan at an appropriate level.

Mr Yi Gang, the governor of the People's Bank of China (PBOC), said in a statement to the International Monetary Fund's (IMF) steering committee on Saturday that Beijing was "deeply disappointed" in the IMF's failure to realign its shareholding structure to recognise the rising influence of China and other fast-growing economies.

Mr Yi pushed back against the United States Treasury's Aug 5 designation of China as a currency manipulator after the yuan fell below the key psychological level of 7 to the dollar.

He said in his statement that the depreciation in the Chinese currency since the beginning of August has been driven by market forces, including volatility prompted by escalating trade tensions.

Mr Yi added that there was "growing market acceptance for two-way exchange rate fluctuations" in the yuan, also known as the renminbi or RMB.

"Judging both from economic fundamentals and from market supply and demand, the RMB exchange rate is at an appropriate level," he said.

In a dig at the Trump administration's "America First" trade stance, Mr Yi said: "The wave of populism and protectionism in some countries has undermined mutual trust, reducing their willingness to cooperate on a multilateral basis."

His statement did not mention the "Phase 1" trade deal that US President Donald Trump announced on Oct 11, but warned of the problems that trade tensions have caused for the global economy.

"Signs of disruptions have emerged in global trade and in global industry chains, supply chains, and value chains," he said. "Trade tensions have dampened market confidence, which may amplify financial market volatility and drag down economic growth."


On IMF quotas, Mr Yi said that the fund's members needed to honour previous commitments to adjust the shareholding to reflect the growing power of dynamic emerging market economies, adding that China supported an adequately resourced IMF based on quota resources, not temporary lending arrangements.

The IMF last Friday announced that its members had agreed to keep lending resources at US$1 trillion (S$1.36 trillion), through extension and a doubling of its crisis lending fund and a corresponding reduction in bilateral borrowing arrangements. But in a move that preserves US veto power over major IMF decisions for four more years, IMF members delayed the next quota review until December 2023.

"The failure to adjust quota shares undermines the representation, governance and legitimacy of the IMF," Mr Yi said. "China will, along with the other parties, continue to push for reforms of the IMF's quotas that will strengthen the voice and representation of emerging market economies."


A version of this article appeared in the print edition of The Straits Times on October 21, 2019, with the headline 'Yuan's level set by market forces, says PBOC chief'. Print Edition | Subscribe