people bank of china

Deputy Governor Liu Guoqiang on RMB Exchange Rate Fluctuations

On May 23, PBC Deputy Governor Liu Guoqiang, who is also deputy director of the Office of Financial Stability and Development Committee under the State Council, commented on recent RMB depreciation caused by China-U.S. trade frictions in an interview with the Financial News. He said exchange rate movements in response to market expectations rightly reflect the intrinsic logic of the market economy and the role of the exchange rate as an “automatic stabilizer” for the macro economy as well as the balance of payments. Currently, despite occasional overshooting in the exchange rate, the market is stable. Nothing has gone wrong or is allowed to go wrong.

While complexities of the external situation may lead to rises and falls in the coming days, Liu Guoqiang stressed, we have the resources, abilities and confidence to keep the RMB exchange rate basically stable at a reasonable equilibrium level. From the medium and long-term perspective, exchange rate movements are mainly determined by economic fundamentals. The Chinese economy will remain for long in an important period of strategic opportunity, with ample resilience and enormous potential for development. The fundamentals for sound economic growth over the long term remain unchanged. Currently, major macroeconomic indicators are within the reasonable range. Specifically, the macro leverage ratio is basically stable, fiscal and financial risks are generally controllable, the balance of payments is roughly in equilibrium, and foreign exchange reserves are sufficient. As sustained efforts have been made in recent years to implement a series of policy measures such as those to streamline administration, delegate powers and cut taxes and fees, the economy is becoming more and more dynamic. Sound economic fundamentals will continue to serve as essential support for the RMB exchange rate. Moreover, international experience shows currency crises rarely emerge in big countries. As the world’s second largest economy and a country with proper macro regulation and effective market mechanism, China provides no grounds for possible occurrence of a currency crisis. As General Secretary Xi Jinping once said, the Chinese economy is not a pond, but an ocean. Temporary uncertainties in the external environment, which are no more than a setback in China’s pursuit of development, will not impact the fundamentals for sound growth of the Chinese economy over the long term. No stranger to exchange rate fluctuations, we have gained rich experience in coping with them in recent years and have ample policy instruments in reserve. We will further strengthen macroprudential management to stabilize market expectations.

Going forward, Liu Guoqiang said, China will continue to deepen reform in an all-round way, strive to open up new prospects in reform and opening-up, further energize the economy to boost endogenous growth, and solidify the fundamentals for long-term stable growth of the Chinese economy with sustained efforts. Work will be done to deepen financial supply-side structural reform, strike a balance between ensuring stable growth and preventing risks, promote financial opening-up, optimize the structure of the financial system, and enhance the ability of the financial sector to serve the real economy so that fundamental support will be provided for a basically stable RMB exchange rate at a reasonable equilibrium level.