Editorials
Key role of forex policy
(China Daily)
Updated: 2010-03-10 07:59
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The message from Yi Gang, head of the State Administration of Foreign Exchange, is noteworthy in that China's foreign exchange policy mainly aims to facilitate trade, cross-border investments and economic exchanges as the country opens up more to other nations.
Both advocates for and opponents against revaluation of the Chinese currency should reconsider their stances in view of this important function of China's $2.4 trillion foreign reserves. Management of the world's largest sum of forex reserves is closely watched, especially amid the global recession.
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On the one hand, the gradual recovery of the global economy has added to renewed momentum in Chinese exports. On the other hand, foreign direct investment is expected to increase steadily as China's economic growth gains steam.
Some people argue that China should revalue its currency to deal with greater pressures from the rising inflow of trade surplus and foreign investment funds. Others insist that an appreciation of the yuan will exert unbearable pressure on domestic industries struggling with climbing labor costs at home and declining demand abroad.
The emphasis that Yi put on the fundamental function of China's foreign exchange policy provides a key criterion to measure their appropriateness.
A relatively stable yuan has so far served as an anchor for both the Chinese economy and the global economy to survive the economic crisis. No adjustment in China's foreign exchange policy should override this critical role it plays.
