Former Federal Reserve Chairman Ben S. Bernanke said the yuan is heading toward fair value, lending weight to China’s claim that its exchange rate is largely determined by market forces.
“The Chinese currency is much better aligned,” Bernanke said Tuesday at a conference in Hong Kong. It “is certainly moving in the direction of being fairly valued.”
The yuan has strengthened against 30 of 31 major currencies in the decade since China scrapped a dollar peg, trailing only the Swiss franc. Its 34 percent jump versus the greenback in that time compares with slides of 26 percent or more for the currencies of Brazil, Russia and India.
Bernanke’s view contrasts with that of U.S. Treasury Secretary Jacob J. Lew, who said last week the yuan remains undervalued and the exchange rate is a source of concern. The International Monetary Fund, which will consider including the currency in its Special Drawing Rights in an October review, on May 26 dropped a long-held view that the yuan was too cheap and urged China to achieve an effectively floating exchange rate within two to three years.
“The U.S. is becoming increasingly a lone voice as it argues the yuan is undervalued,” said Nathan Chow, an economist at DBS Bank Hong Kong Ltd. “More and more independent organizations are arguing that the yuan is at equilibrium and its price is fair.”
The yuan trades at about 6.20 a dollar, having held its value this year as the prospect of a U.S. interest-rate increase boosted the greenback against all but five of the major currencies. The People’s Bank of China will keep the exchange rate “basically stable at equilibrium,” it said in April.
The yuan’s resilience as the U.S. prepares to raise interest rates bolsters the attraction of holding the Chinese currency, helping increase worldwide usage before the IMF reviews its Special Drawing Rights basket of reserve currencies. The yuan failed in a 2010 review as it was deemed not “freely usable.”