Govt firm on stable currency policy: official

By Cong Mu

China Tuesday restated its long-standing policy to maintain the stability of the yuan at a reasonable level, after US President Barack Obama said he would discuss the currency when he visits Beijing.

Asked about Obama's comments, Foreign Ministry spokesman Qin Gang said China would keep improving the currency's exchange rate mechanism with a view to gradually making the yuan more flexible.

Because China has little leeway to restructure its economy in the short term, it will maintain the current export- and investment-led growth model and pursue gradual changes, said Zhao Xijun, deputy director of the School of Finance at the People's University of China.

Therefore, China is likely to keep its exchange rate and macro-policies stable, Zhao said.

When enterprises and consumers learn to accommodate themselves to the price volatility, it is then possible for the government to allow more changes in the exchange rate regime, Zhao added.

There is a disconnect between what China would like to do and what the rest of the world wants China to do with its currency policy, said TJ Bond, chief Asian economist of BofA Merrill Lynch Tuesday in Hong Kong.

In order to normalize the monetary policy and prevent an asset bubble, China will need a stronger and more flexible currency, Bond said.

Reuters contributed to this story

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