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PBoC Adviser Calls For Increased Yuan Flexibility

(RTTNews) – China should make its yuan exchange rate more flexible in the coming months and should take efforts to internationalize the currency, a People’s Bank of China adviser wrote in a commentary published on Thursday’s China Daily newspaper.

“The exchange rate must be made more flexible in the coming months, as it will help stimulate foreign trade and structural adjustments as well as ease expectations of a renminbi appreciation,” said Xia Bin, who is also the director of the Finance Institute at the Development Research Center of the State Council.

He also said efforts must be made to internationalize the renminbi by investing or lending to nations in dollars and encouraging trade with China using the yuan as a settlement currency.

On June 19, the Chinese government said it would loosen its exchange rate regime, although it ruled out a large one-off revaluation. The yuan has gained around 0.8% against the U.S. dollar since then. The Chinese authorities have prevented the yuan from strengthening against the dollar since July 2008 to help exporters cope with the global financial downturn.

Xia noted that the real estate market needs guidance as well as adjustments to ensure a smoother functioning of the economy must be devised. Elsewhere on Thursday, China reportedly announced a new round of stricter stress tests on state banks’ loans to the property sector, to test the impact of a fall in house prices of up to 60% in big cities. The regulator is also reportedly considering issuing a halt to mortgage lending to third-home buyers in some cities.

The People’s Bank of China set a cap of 7.5 trillion yuan in fresh loan disbursals for the year. Xia said this limit must be strictly adhered to reduce the increase in the lending growth.

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