Yuan Policy Change May Be Announced in Days
The Chinese government is very close to announcing a revision of its currency policy in the coming days that will allow greater variation in the value of its currency combined with a small but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said on Thursday.
While the possibility remains of a last-minute glitch that could delay an announcement, China’s central bank appears to have prevailed with its arguments within the Chinese leadership for a stronger but more flexible currency, these people said. They insisted on anonymity because of the sensitivity of the issue in Beijing.
The model for the upcoming shift in currency policy is China’s move in 2005, when the leadership allowed the renminbi to jump 2 percent overnight against the dollar and then trade in a wider daily range, but with a trend toward further strengthening against the dollar. For the upcoming announcement, however, China is likely to emphasize that the value of the renminbi can fall as well as rise on any given day, so as to discourage a flood of speculative investment into China betting on rapid further appreciation, they said.
The emerging consensus within the Chinese leadership comes as Treasury Secretary Timothy F. Geithner held meetings on Thursday with senior Hong Kong officials and prepared to fly on Thursday evening to Beijing for a meeting with Vice Premier Wang Qishan.
China’s commerce ministry, which is very close to the country’s exporters, has strenuously and publicly opposed a rise in the value of China’s currency over the past month. But it appears to have lost the struggle in Beijing as other interest groups have argued that China is too dependent on the dollar, that a more flexible currency would make it easier to manage the Chinese economy and that China is becoming increasingly isolated on the world stage because of its steadfast opposition to any appreciation of the renminbi since July, 2008.
An official for the central bank had no immediate comment.
Xia Bin, a member of the monetary policy committee of the Chinese central bank, hinted at the new policy for the currency, known as the yuan or renminbi, in remarks to reporters in Shanghai on Thursday.
“Whether to let the yuan slowly appreciate or let it rise to a tolerable range after careful calculation, I think it is better to have that quick, prompt appreciation,” he said according to Reuters.
Mr. Xia later added that, “At a certain point, when necessary, it is better to have a quick, prompt appreciation in a bid to fend off speculative capital.”
Economists said that the emerging consensus in China reflected a broad assessment by Chinese leaders that inaction on the currency could be as dangerous as holding on to the current value of the currency.
“The Chinese feel the whole sentiment is against them, so they feel they need to show they are globally engaged,” said Frank-Jürgen Richter, the president of Horasis, a Geneva-based company specializing in economic issues in emerging markets.
Even a small increase in the value of the renminbi is likely to be a political bonus for the Obama administration, which has been under heavy pressure from Congressional Democrats to confront China more directly over currency policy.
“Every administration has thought it could get something done by talking to China,” Senator Charles E. Schumer, Democrat of New York, said in a statement on Wednesday. “But years of experience have shown that the Chinese will not be moved by words; they only respond to tough action.”
In a reversal of the usual interaction between Washington and Beijing, however, the Obama administration has been virtually silent for the past month as senior Chinese officials have feuded in public over what to do. The commerce ministry opposed a move to a stronger currency and the central bank favored one.
Premier Wen Jiabao ended up saying at the National People’s Congress that the renminbi would be “basically stable” — a formulation that was widely interpreted at the time as blocking appreciation of the renminbi, but with hindsight now seems to have set the stage for a small rise in its value while reassuring exporters that no large move would occur.