VII-6 Question: Recently, there has been speculation in the international market that China will let its currency appreciate rapidly. Is this true? What is the future trend of the Renminbi yuan?
A: China has been practicing the socialist market economy. So, the Chinese Government will no longer dictate the ups or downs of its currency through administrative means.
The Renminbi's exchange rate concerns many countries. It is also important for China's policy to balance international payments. In making exchange rate policies, China will take into consideration not only the social and economic stability of China but also regional and international economic and financial stability. China will adopt responsible policies according to its own agenda.
On July 21, 2005, China introduced a managed floating exchange rate regime based on market supply and demand of a basket of currencies. Since then, the yuan has moved both up and down. And small but steady appreciation has become the trend. increases. For instance, the exchange rate of the yuan against the U.S. dollar on March 19, 2007 was 7.7351 to 1. The yuan has been appreciated 4.85 percent since the reform of the foreign exchange system. As part of the effort to build a socialist market economy, the reform of foreign exchange regime in China has achieved the expected result, with a more flexible exchange rate and a foreign exchange trading market taking shape.
There are different versions of forecasts in the market about the trend of the yuan and to what extent it will appreciate. However, one thing is certain - it will be a gradual process. In the short and mid term, the yuan will appreciate moderately. Several factors have pushed the yuan up. China's labor productivity has increased at an annual rate of 15.9 percent in recent years, far higher than that of developed countries such as the United States, Japan and European countries.The country has enjoyed surplus in both current and capital accounts. Its foreign exchange reserves have been surging. And large inflow of foreign currencies and venture capitals has spurred the demand for Renminbi. Of course, we will not rule out any temporary devaluation of the yuan, given the weak links in the Chinese economy, and imperfection in the financial markets.
Overall, China's foreign exchange policy is clear. That is, China will actively, gradually and steadily improve its managed floating exchange rate regime.