Zhou Xiaochuan ‘Renminbi exchange rate mechanism will be gradually promoted’

Zhou Xiaochuan made the above statement in a debate held by British Broadcasting Corporation during the interval of the annual conference of International Monetary Fund and World Bank. He also claimed that China is in the need of a market-based exchange rate formation mechanism. However, Zhou did not estimate the trend of RMB exchange rate nor Chinese economic growth.

One can hardly predicate upon Zhou’s statement that China will make concessions towards the powerful voice of pushing an appreciation in Renminbi. Developed countries have been demanding a sharp appreciation in the Renminbi in order to benefit the world economy recovery. But Zhou implied that if there is an increasing trend in the balance of payments surplus, appreciation in the Renminbi will be ensured. In recent months, Chinese central bank stated that the balances of payments are in approximate balance. Therefore, the basis of a sharp appreciation in the Renminbi is non-existent.

Zhou indicated that the implement of proactive fiscal policy and loose monetary policy which were aimed at dealing with the global financial crisis in 2008 resulted in inflation and financial asset bubble. He said that China would be poring over fiscal and monetary policy in the next few months in order to estimate the economic tendency. But he also pointed out that there are still spaces for China to enforce active fiscal policy to support economic growth since the debt ratio is relatively small in GDP.

Zhou argued that the public understanding towards government economic policy is the most essential issue for the policymakers. He said it could be really difficult to be aware of the public’s high or low confidence. If the public made different responses towards the policy, policymakers are expected to be alert or even rethink certain issues.