China's Economy Doesn't Merit Persistently Weaker Yuan: PBOC

  • China says equities correction has 'largely run its course'
  • Officials promise reforms to prove reserve-currency status

A top Chinese central banker said a “persistent" weakening of the yuan would be inconsistent with the fundamentals of the world’s second-biggest economy, and the country is committed to making its currency regime more flexible and market based.

“As wide-ranging structural reforms are being carried out, the Chinese economy will become more balanced and sustainable," People’s Bank of China Deputy Governor Yi Gang said Friday in a statement at the International Monetary Fund annual meetings in Lima. Reforms to make the yuan more market-determined will make its exchange rate more flexible, “floating around the equilibrium level in both directions."

The yuan has fallen 2.1 percent against the dollar since Aug. 11, when the central bank announced steps to put the currency more in line with market forces. Global finance chiefs persuaded China to "refrain from competitive devaluations" at a Group of 20 meeting last month in Ankara.

Yi said the correction in China’s stock market has “largely run its course," adding that the decline has had a limited impact on the country’s economy.

Chinese officials will “review and improve the regulatory framework of the market, strengthen supervision, and take measures to restore the functioning of the equity market, when appropriate," he said.

Equity Rout

Chinese officials spent 1.5 trillion yuan ($236 billion) purchasing shares through August amid a rout that started in June and wiped out about $5 trillion in market value.

The government has tried to bolster the weakest expansion of the Chinese economy in 25 years with measures including interest-rate reductions and the surprise currency devaluation in August.

Chinese Finance Minister Lou Jiwei, in a press conference in Lima earlier on Friday, said the yuan fell “in response to the market” after the Aug. 11 PBOC decision to make the exchange rate more market-based.

China is seeking to have the yuan added to the IMF’s basket of reserve currencies, which currently includes the U.S. dollar, euro, pound and yen.

Yi said China plans a number of measures to strengthen the currency’s case, including participating in the IMF’s coordinated portfolio investment survey, issuing three-month treasury bills on a weekly basis to establish "representative" yuan interest and exchange rates, and making the nation’s bond and currency markets more open to foreign central banks.

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