The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the renminbi exchange-rate regime and increase the renminbi exchange-rate flexibility.
—The People’s Bank of China, in a statement, ruling out “large-scale appreciation” but in line with a general view towards relaxing the dollar peg: via Bloomberg.
China has effectively shifted the debate right before the G-20 meeting and it can now argue that the G-20 leaders should focus on the major determinants of global imbalances, especially the buildup of debt in advanced economies. It also serves to acknowledge that they have an important responsibility to the international community.
This move is a vote of confidence in the global recovery and a reaffirmation of Beijing’s longstanding commitment to a flexible currency regime. This shift, however, is not a panacea for an unbalanced global economy. Surplus savers like China still need to take additional actions to stimulate internal private consumption.
China has ended its crisis-mode exchange-rate policy as the economy recovers strongly and inflationary pressure continues to build. The yuan’s future trend depends on the euro’s movement, and the trends of other major currencies.
This is an important step, but the test will be how far and how fast they let the currency appreciate. Vigorous implementation would make a positive contribution to strong and balanced global growth.
—Tim Geithner, in a statement: via Bloomberg