Magazine article Global Finance

FX Update

Magazine article Global Finance

FX Update

Article excerpt

China Easing Into Currency Reform

While full currency liberalization may well be the ultimate goal for China, there will inevitably be a number of interim steps along the way. Indeed, officials have stressed repeatedly over the past few months that the pace of reform will be gradual. The latest in a long line was PBOC governor Zhou Xiaochuan who stated in late May: "When there is a certain amount of cross-border use of the CNY, there will be a natural demand that the CNY will move, towards full convertibility in a gradual and orderly manner."

Some signs of one small shift in currency policy began to emerge back in late March when a number of academics embedded in both the PBOC and high level think tanks began to call for a significant pick-up in the pace of CNY appreciation. The first of these calls came from Xia Bin, an academic member of the PBOC policy committee, who wrote in Caijing magazine that "The possibility of a big and one-off (CNY) exchange rate adjustment, if necessary, should not be ruled out," Since then we have heard from Yang Jianlong (an economist at the cabinet's Development Research Centre of the State Council) who called on March 23rd for a minimum of a 5% rise in the CNY this year and Zhu Baoling, chief economist from the State Information Centre, who in early April said an annual rise in the CNY of 7% was "reasonable." If there were any doubts that currency policy had finally been added to the list of monetary policy tools, these were erased by comments from the governor of die PBOC, Zhou Xiaochuan, in midApril when he explicitly stated that the CNY had now been added to the toolkit. …

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