China to use yuan to rein in prices
Choosing a policy tool: A labourer marks steel bars at a factory in Jiangsu province. China inflation has remained a concern, prompting authorities to consider the yuan as a policy tool. Picture: Reuters
Sunday, February 24, 2008
CHINA will step up use of the yuan's exchange rate to help bring better balance to China's international payments and the domestic economy, the People's Bank of China said on Friday.
The explicit commitment follows a marked acceleration in the pace of the yuan's rise in recent months as the central bank battles to keep a lid on rising inflation.
"We will go a step further in allowing the exchange rate to play a role in adjusting the balance of international payments and promoting balanced economic growth," the PBOC said in its monetary policy report for the fourth quarter.
The central bank, which keeps the yuan under tight control, allowed the currency to reach 7.1413 per US dollar on Thursday, the highest level since it scrapped a US dollar peg in July 2005 and let the yuan float in managed bands.
The yuan has now gained 13.6 per cent against the US dollar, including an initial 2.1 per cent revaluation in July 2005.
Most exporters had improved their competitiveness and adapted better than expected to the stronger yuan by increasing efficiency, cutting costs and upgrading their products, the PBOC said.
It gave the example of textile firms, some 55 per cent of which had raised their prices in the first half of 2007.
Some had moved production to cheaper cities inland, and some had started to sell more inside China or had expanded into new markets in Southeast Asia, Australasia and Africa.
The faster rise in the yuan has been welcomed by economists, who say it will trim China's trade surplus and so cap at the source the torrent of liquidity pouring into the economy that has helped propel inflation to an 11-year high of 7.1 per cent.Reuters
The explicit commitment follows a marked acceleration in the pace of the yuan's rise in recent months as the central bank battles to keep a lid on rising inflation.
"We will go a step further in allowing the exchange rate to play a role in adjusting the balance of international payments and promoting balanced economic growth," the PBOC said in its monetary policy report for the fourth quarter.
The central bank, which keeps the yuan under tight control, allowed the currency to reach 7.1413 per US dollar on Thursday, the highest level since it scrapped a US dollar peg in July 2005 and let the yuan float in managed bands.
The yuan has now gained 13.6 per cent against the US dollar, including an initial 2.1 per cent revaluation in July 2005.
Most exporters had improved their competitiveness and adapted better than expected to the stronger yuan by increasing efficiency, cutting costs and upgrading their products, the PBOC said.
It gave the example of textile firms, some 55 per cent of which had raised their prices in the first half of 2007.
Some had moved production to cheaper cities inland, and some had started to sell more inside China or had expanded into new markets in Southeast Asia, Australasia and Africa.
The faster rise in the yuan has been welcomed by economists, who say it will trim China's trade surplus and so cap at the source the torrent of liquidity pouring into the economy that has helped propel inflation to an 11-year high of 7.1 per cent.Reuters
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