At yesterday's "Second Report on China's Economy," Yi Gang, assistant to the president of China's central bank, said that since reform of the exchange rate, the Renminbi (Chinese Yuan) has remained stable. He said that the government had made extensive preparations, including considerations of monetary policy. With these in place, the Yuan was able to maintain a reasonable and proportional level.
Yi Gang stated that in the process of reform, the state increased macro-controls, reform of state banks (especially in the financial sector) and decreased unnecessary controls on foreign currency. Also, using various means, the state was able to relieve pressure for appreciation of the Yuan.
In regards to speculation, he points out that the London LIMEAN index for the US dollar is about 4%, while the domestic rate for China is around 1.3%. Even if the Yuan appreciates by 3% over the next year, there is no profit in speculation on the Yuan and expectation of appreciation of the Yuan has subsided. Non-Deliverable Forwards (NDF) for the Yuan in Hong Kong and Singapore has already fallen from 4500 points (July 22) to 2500 points.
Yi Gang also explained that speeding up the development of currency markets, especially long-term markets, in order satisfy the demand for use of foreign currencies in international trade to hedge losses as well as reduce trade related risk of exchange rates.
