By Jamil Anderlini in Beijing
April 6 2010
China has begun to prepare the ground publicly for a shift in exchange rate policy, days after the US Treasury said it would postpone a decision on whether to name China a “currency manipulator”.
A senior government economist told reporters in Beijing on Tuesday China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis,
Ba Shusong, deputy director-general of the Financial Research Institute at the Development Research Center, the cabinet’s think-tank, said the timing of any shift depended on the pace of economic recovery in both the US and China.
Speaking at a press briefing organised by the Foreign Ministry, Mr Ba said the current peg was a temporary emergency measure that would be abolished at some point.
In recent months, Wen Jiabao, China’s premier, and other senior officials have repeatedly said the renminbi was not undervalued and China would not bow to foreign pressure over its value.
But the official tone has moderated, with Chinese officials suggesting privately that a proposal to adjust currency policy had already been submitted to the cabinet for approval.
Both sides have made conciliatory gestures following months of strained relations, with the US delaying a decison on China as a “currency manipulator” and Beijing moving diplomatically in tandem with Washington on Iran and nuclear security.
“Some grand bargain between the US and Beijing appears to be in the works if it hasn’t already been struck,” said Stephen Green, an economist at Standard Chartered in Shanghai.
Tim Geithner, the US Treasury secretary, told India’s NTV in New Delhi on Tuseday that it was “China’s choice” whether to revalue the renminbi and he was confident Beijing would see a more flexible currency was in its own interest.
Goldman Sachs predicts Beijing will soon widen the daily trading band within which the renminbi fluctuates against the dollar from plus or minus 0.5 per cent to plus or minus 1 per cent and then allow it to gradually rise.
“Outside this base case, a relatively small and symbolic one-off revaluation remains possible but the likelihood of a more sizeable move remains negligible,” Goldman Sachs economists Helen Qiao and Yu Song said in a report.
The Chinese foreign ministry said China would adhere to three principles on currency policy: any change must be controlled, it must be Beijing’s own initiative and any shift must be gradual.
Despite repeated official assertions that the renminbi is not undervalued, most Chinese economists and economic officials acknowledge it is likely to strengthen over the long term.