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WASHINGTON (Reuters) — China can phase out currency intervention by gradually reducing the amount and frequency of its forays into the market, the country’s central bank governor said on Saturday, underscoring Beijing’s resolve to keep up efforts to boost the yuan’s global presence.
People’s Bank of China Gov. Yi Gang also said the central bank will seek to guide monetary policy so that real interest rates move slightly below the potential growth rate.
“We have been trying to maintain the exchange rate stable for some time. If you go on forever, then one day I would say that markets would defeat the central bank,” Yi said in a seminar during the International Monetary Fund and World Bank spring meetings in Washington.
“If you have the right monetary policy, I think you make sure the exchange rate is determined by the market and authorities intervene” as little as possible, he said.
While China reserves the right to intervene in times of market turbulence, authorities must allow market forces to drive yuan moves more, Yi added.
“Interest rate is the key and exchange rate is determined by market. That’s the basic message I want to get across,” he said.
Yi said China has managed to keep inflation “very stable” around 2% through exchange-rate and monetary policies, adding that it was pursuing a “balanced” current account rather than running a surplus.
Chinese leaders have pledged to step up support for the world’s second-largest economy, which is gradually rebounding from a pandemic-induced slump after coronavirus-related curbs were abruptly lifted in December.
With U.S. and European banking-sector woes clouding the global economic outlook, central bankers gathering for the IMF meetings debated whether monetary policy tools should be used for restoring financial stability.
Yi said in “normal” times, central banks can separate monetary and financial system policies, and conduct monetary policy purely to conquer inflation.
But central banks cannot totally separate the two when a systemic risk puts their country’s financial stability in danger, he added.
China, the world’s largest bilateral creditor, also holds the key to solving debt woes for some low- and middle-income countries that have been aggravated by rising global interest rates.
“If we can cooperate, if we can equally and fairly share the burden, I think we can solve the problem,” Yi said, when asked whether China could join a Japan-initiated common platform to coordinate restructuring of Sri Lanka’s debt.
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