Premier Wen on Chinese currency reform

by: Ezra Marbach

Chinese Premier Wen delivered a speech on June 26th at the opening ceremony of the 6th Asia-Europe Finance Ministers Meeting. Here is what he said about future Chinese currency reform:

....Now, I would like to spend several minutes on the issue of RMB exchange rate which has been a focus of attention both at home and abroad. I have three points to make.

First, it is the common understanding in the world that every country is entitled to choose the exchange rate mechanism and policy suitable to its own national conditions. Back in the early 1990s, China set its targets and tasks for the reform of RMB exchange rate mechanism. That is, to gradually establish a market-based and well-managed floating exchange rate system so as to keep RMB exchange rate basically stable at a reasonable and balanced level. Over the past decade and more, we have done a lot on the reform of RMB exchange rate mechanism and made important progress.

Second, keeping RMB exchange rate basically stable at a reasonable and balanced level is in the interests of economic development not only in China but also in neighboring countries and region as a whole, and contributes to the world financial stability and expansion of trade. This point was well illustrated during the Asian financial crisis in 1997, when the stable RMB helped alleviate the pain on our neighboring countries and regions and contribute to economic and financial stability and development in Asia and the whole world.

Third, we must uphold the principles of independent initiative, controllability and gradual progress in pursuing RMB exchange rate reform. By "independent initiative", we mean to independently determine the modality, content and timing of the reform in accordance with China's needs for reform and development. In the exchange rate reform, we should take account of its possible impact on the country's macro-economic stability, economic growth and job market, give consideration to the state of the financial system, the level of financial regulations, resilience of the enterprises and effect on foreign trade and keep an eye on the economic and financial performance of the neighboring countries and regions, and of the world as a whole. By "controllability", we mean to properly manage the changes in RMB exchange rate at the level of macro-regulations. We must push forward the reform but always stay on top of the changes, so as to prevent fluctuations in the financial market and economic instability. By "gradual progress", we mean to push forward the reform in a step-by-step manner. We must take into consideration both the present needs and the future development and guard against undue haste. In short, we need to continue improving the RMB exchange rate forming mechanism and develop an exchange rate system that is more market-oriented and more flexible. However, since this reform involves a wide range of areas and will have a far-reaching impact, it still requires a great deal of preparation to help create an enabling environment for all sides to sustain the possible impacts. Such a responsible attitude and practice of China will contribute to the stability and development of not only Chinese macro-economy but also the economy of the surrounding countries and the larger world.

There is an old saying in China: "Distance cannot separate true friends who feel so close even when are thousands of miles apart." China and the other Asian countries are linked by common mountains and rivers and together they created the splendid Asian civilizations. The ancient and beautiful Silk Road is a witness to the Sino-European exchanges over thousands of years. Now, the mutually beneficial cooperation between China and other countries in Asia and Europe is entering a brand new stage. China has become a positive force for the economic development of Asia, Europe and the world as a whole. We will adhere to the road of peaceful development and remain committed to developing vigorous all-round cooperation featuring long-term stability with other countries in Asia and Europe. It is our hope that China and other countries in Asia and Europe will support each other and join hands to move forward.

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