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China indicates greater currency flexibility

By Eve Bower, CNN
STORY HIGHLIGHTS
  • Flexibility in the yuan exchange rate has been an issue for China and the United States
  • The United States has said China gives its currency an artificially low value
  • China maintains the stability of its currency has played a mitigating role in the financial crisis

(CNN) -- China appears increasingly set to allow its currency, the yuan, to float more freely against the U.S. dollar, if a recent string of statements from one of its central bankers is any indication.

In an interview published Tuesday in China's state-run China Securities Journal, the deputy governor of China's central bank, Hu Xiaolian, is quoted as saying, "I think the present 0.5 percent daily limit is still relatively appropriate. From a development point of view, in the future, it is possible that [the daily limit] will continue to expand, but at present, it is still relatively appropriate."

China currently sets a target exchange rate around which it allows the trading value of the yuan to rise or fall by 0.5 percent against the U.S. dollar in a given day.

The previous week, Hu published an article on the website of the People's Bank of China making an argument for greater flexibility in China's exchange rate policy, saying, "adopting a more flexible exchange rate regime serves China's long-term interests." She added, "At present, a more flexible exchange rate regime will help curb inflation and asset bubbles."

In June of this year, just ahead of the G20 meeting, China announced that it would resume a policy of exchange-rate flexibility. Prior to that announcement, China had adhered to a policy of pegging the value of its currency to the U.S. dollar since July 2008.

The issue of inflexibility in the yuan's exchange rate has been a frequent source of discord between the United States and China.

The United States has said that China's exchange rate gives the yuan an artificially low value, and gives Chinese exporters an advantage on the world market. China maintains that the stability of its currency has played a mitigating role in the global financial crisis, and has specifically contributed to Asia's recovery from the downturn.