Speaking at a news conference, People's Bank of China Governor Zhou Xiaochuan explained that it will look to the markets to determine the value of the nation's yuan currency. It will also maintain a flexible policy to support credit growth.
The Chinese yuan has risen in value in recent years. A lot of economists, though, have issued dire warnings of such an occurrence: a global trade war. If China’s yuan rises in value then it create more employment in the United States, while the opposite would transpire in China.
However, Chinese officials have stated currency appreciation is in its best interest and that they have permitted the yuan to rise 6.5 percent since the summer of 2010. There have been many reports of currency manipulation on part of the Chinese, which U.S. economists argue is giving them an unfair competitive advantage.
During a news conference Monday, senior economic officials explained that it will support credit growth when it revises and eases its monetary policy. It also stated that it will seek market forces to determine the value of its yuan.
In order to free up lending, investors have suspected that China would reduce the amount of cash its commercials banks must hold as reserves for the People’s Bank of China, the nation’s central bank. Its governor said it has plenty of room to relax monetary policy.
“The closer the yuan is to an equilibrium, the bigger role market forces will play in the yuan exchange rate. We will allow and encourage market forces to play a bigger role, and the central bank’s participation and intervention in the market will decrease in an orderly manner,” said Zhou Xiaochuan Zhou, Chinese central bank governor, according to Reuters.
“There is a pretty big room for RRR cuts. The RRR is just over 20 percent now. We had a low RRR of 6 percent in the late 1990s, even lower than that in some countries.”
The nation’s political leadership undoubtedly decided to increase bank lending, but in the end sought a balance.
Meanwhile, the central bank governor’s foreign currency deputy, Yi Gang, stated that the rises in its currency are unlikely to transpire again in the near future, reports the New York Times. He reiterated Zhou’s sentiment of having “an exchange-rate regime that is more market-based.”
Also at the same news conference, Zhou issued his concerns about Europe’s sovereign debt crisis, which he said will impact China’s monetary policy.
“The world economy is highly globalized with a very active flow of capital worldwide,” said Zhou, reports Euro News. “All of these factors will have an impact on our monetary policy.”