To keep the exchange rates of Renminbi stable is beneficial to China and to Asia and the world as a whole, said a senior government official Tuesday.
During an exclusive interview with Xinhua on the sidelines of the ongoing first session of the 10th National People's Congress and the first session of the 10th National Committee of the Chinese People's Political Consultative Conference (CPPCC), Guo Shuqing, director general of the State Administration of Foreign Exchange and member of the 10th CPPCC National Committee, said stability of RMB exchange rates has buttressed the confidence in the Chinese currency both at home and abroad and contributed to the economic stability of neighboring countries and other parts of the world.
The exchange rate of the Chinese currency RMB to the dollar was kept at 8.2773:1 at the end of 2002, 5.1 percent higher than at the end of 1994.
The current exchange rate system tallies with China's national conditions, Guo said. China began to institute a market-based single and controlled floating exchange rate system in 1994 and it is still in force till today. To prevent violent fluctuations, the central bank has regulated and controlled foreign exchange supply and demand by legal and market means.
Practice has proved that the arrangement is well in keeping with the current stage of economic development, the current level of financial regulation and the bearing capacity of enterprises, he said. It is an option square with the national conditions. It is this system that has enabled the exchange rate of RMB to remain basically stable and the country better able to resist the adverse impact of the Asian financial crisis.
He pointed out that the current exchange rates of RMB float instead of remaining static. Since China unified its exchange rates in 1994, the exchange rate of the RMB has been in a flexible state, with ups and downs at different time points. But it has generally been in an upward trend as against the currencies of China's principal trading partners.
The nominal appropriations of RMB to the dollar, euro, Japanese yen, ROK won and Thai Baht were 5.1 percent, 17.9 percent, 17 percent, 58.1 percent and 78.7 percent, respectively, at the end of 2002. However, allowing for inflation factors, the actual ranges of appreciation of RMB to the above-mentioned currencies were 17 percent, 41.8 percent and 65.3 percent, 47.3 percent and 66.8 percent, respectively.
The weighted average exchange rate (the nominal effective exchange rate ) of RMB to the currencies of major trading partners rose 13.9 percent or 21.5 percent allowing for inflation factors from January 1994 to September 2002, according to calculation by the International Monetary Fund.
There are special reasons behind the small range of fluctuation in the RMB exchange rate to the dollar, Guo noted. RMB exchange rate to the dollar had be on the rise until the end of 1997. But the spread of the Asian financial crisis forced many Asian currencies to depreciate dramatically, bringing great pressure to bear upon RMB. But the Chinese government committed not to let its currency depreciate and succeeded in controlling it within a narrow range. This has not only helped promote China's economic and financial stability, but also helped avoid competitive depreciation by Asian countries, thus holding the crisis in check.
The stable exchange rate policy continued after the Asian financial crisis, Guo said, adding that it is good for promoting foreign trade and corporate cost accounting, good for the influx of foreign capital and good for controlling deflation.
The exchange rate formation mechanism is yet to improve, Guo noted.
If necessary and feasible, China will continue to expand the floating range of the exchange rate, Guo promised. But that would lead to two-way changes, that is, it may lead to either a lower or higher level of exchange rates.
March 12, 2003
Source: Xinhua News Agency
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