Friday, October 15, 2004
Friday, October 15, 2004Stronger yuan 'may not worsen jobless rate'Forex chief predicts strengthening currency would not affect exports either
REUTERS in Beijing
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Fears that a stronger yuan would increase unemployment are probably overstated if the exchange rate moves in a controlled range, the foreign exchange chief said in comments published yesterday.
"If the renminbi's exchange rate fluctuates in a controllable range [that is, managed floating], it will not have a major influence on domestic employment," Guo Shuqing , the head of the State Administration of Foreign Exchange, said.
A "managed float" is Beijing's term for gradual reform that many analysts expect will be based on widening the yuan's slim trading band.
Mr Guo also played down the effects of a stronger yuan on exports, saying the mainland's competitiveness came from low labour costs, not a cheap currency.
But he said the impact on jobs would be considered as part of formulating policy.
"When considering the exchange rate policy, we will also think about its potential impact on domestic employment," Mr Guo, who is a vice-governor of the central bank, told the China Daily newspaper.
His message was in line with pledges to slowly ease controls on the yuan, pegged at about 8.28 to the US dollar and which is not freely convertible.
On Tuesday, Mr Guo's administration poured cold water on mounting speculation the mainland would strengthen the yuan soon, saying it would not resort to a one-off revaluation.
It has resisted pressure from the United States and others to strengthen the value of the yuan, with officials saying that such a move would, among other effects, throw many people out of jobs at a time when unemployment was already high.
They fear a stronger yuan would make mainland products more expensive and possibly lead to a slowdown in demand for exports, which have boomed in recent years, helping to create jobs.
Beijing is also worried that a shift in currency policy could have unpredictable consequences as authorities try to cool heated investment and lending and put the world's seventh-largest economy on a more stable footing.
But US Federal Reserve Governor Ben Bernanke said yesterday that a move toward currency flexibility by China would benefit the mainland and global economies.
"Moving toward exchange-rate flexibility is in the interest of China as well as the rest of the world," Mr Bernanke told a Washington conference. An independent monetary policy and freely floating currency would give China an economic "shock-absorber", he said.
He played down concerns that a shift in China's foreign exchange regime could dent the US bond market if Beijing stopped being a buyer.