BEIJING, Jan. 20 -- People's Bank of China Assistant
Governor Ma Delun said the market is determining the yuan's exchange rate,
rejecting U.S. criticism that the government keeps the currency artificially
weak to spur exports, the Bloomberg reported.
Ma said currency policy wasn't to
blame for the U.S. trade deficit. "Workers' pay in China is 1/33rd of that of a
U.S. worker," Ma said in an interview in Shanghai on Jan. 18. "The U.S. has to
accept this global reallocation of industries."
Senators Charles Schumer, a New York Democrat, and
Lindsey Graham, a South Carolina Republican, are sponsoring legislation in
Congress that would impose tariffs on imports from China unless the yuan is
allowed to appreciate more rapidly.
The U.S. government estimates the trade deficit with
China widened to $185 billion in the first 11 months of 2005, up 25.4 percent
from a year earlier. Treasury Secretary John Snow said on Jan. 6 that he's "not
at all satisfied" with China's currency policy.
The yuan's value has risen 0.5 percent against the
dollar since a decade-old peg ended in July, compared with a 3.4 percent jump in
Korea's won and 4.8 percent advance in Thailand's baht.
The yuan failed to jump this month when the
central bank reduced its role by allowing 13 commercial banks including
Citigroup Inc., HSBC Holdings Plc and ABN Amro Holding NV to act as market
makers, who pledge to offer prices for the currency.
"We're not manipulating the yuan," Ma said. "The U.S.
trade deficit is not caused by the yuan. It's easy to explain this to an
economist, but those who don't know about finance don't understand this. They
should go back to university."
China on July 21 reset the yuan's value at 8.11 to
the dollar, a 2.1 percent appreciation from the level where it had been held
since 1995, and started managing its value against a basket of currencies
including the euro and yen. Yuan traded at 8.0673 to the dollar at 3:30
p.m. local time yesterday.
"The small appreciation is decided by the market," Ma
said, when asked about the currency's movement since July 21. "Market
participants have different views than some outsiders."
Ma, 56, was vice director of the central bank's State
Administration of Foreign Exchange for four years until last March. In August,
he was named executive vice president of the central bank's Shanghai office,
which carries out market operations under guidance from Beijing headquarters.
Questioned on what his forecast for the yuan is this
year, Ma responded: "You need to ask the market."
The central bank on Jan. 4 approved banks to start
quoting and trading the yuan, ending its role as the sole price-setter for all
yuan trades. The central bank now sets a daily reference rate for trading by
taking an average of quotes from market makers. The yuan is allowed to trade 0.3
percent against the dollar either side of the daily rate.
Under the market-maker system, the yuan's volatility
hasn't increased. The currency's biggest one-day price swing against the dollar
this year is 0.03 percent. The biggest fluctuation since the ending of the peg
is 0.07 percent on Aug. 11.
"The idea for the yuan market makers is to have the
mechanism in place before seeing very volatile trading," said Kenneth Poon, head
of local markets trading at ABN Amro in Shanghai, one of five foreign market
makers. "It needs time for the market to develop."
Poon said trading is dominated by companies involved
in trade, rather than hedge funds or individual investors, because the
government limits conversion of currency for investment purposes. He said there
was little incentive for banks "to trade more aggressively" in such a controlled
"Trading in China is not based on speculation, but
based on actual needs," said Ma. "Not unlike central banks in any other
countries, we are the manager and participants of the currency market, and the
goal is to maintain stability."
Timothy Condon, head of Asian financial markets
research at ING Groep NV in Singapore, said the central bank "still has a big
influence on the yuan" and uses the same methods as its overseas counterparts to
influence market prices. He predicts a 2 percent gain in the currency this year.
"Some people may think the yuan should appreciate
rapidly, but, in fact, it may not," the central bank's Ma said. "It's important
to let U.S. politicians understand the currency and what the currency's
mechanism is," he said, without naming the lawmakers concerned.
The U.S. Treasury, in a twice-yearly review released
in November, didn't name China a currency manipulator, while calling for greater
China's expanding foreign-exchange reserves and trade
surplus, which was "much more than we expected" in 2005, are putting pressure on
the yuan to appreciate, Ma said.
Ma described as "all rumor" reports that China might
switch its reserves out of U.S. dollar assets. "We're satisfied with our
management of foreign currency reserves," he said.
(Source: China Daily/Bloomberg)