Central Bank Unwavering on Yuan Reform

Yi Gang, a deputy governor for China's Central Bank, said a convertible yuan remains the ultimate goal for the nation's currency exchange rate reform. Yi did not give a timetable, but instead emphasized that the central bank has been steadily reforming the yuan since 1994, noting that it has been convertible for current accounts since 1996.

Yi made the remarks in an interview with Caixin's China Reform magazine. "It takes seven to 10 years for most currencies to advance from current accounts convertibility to capital accounts convertibility," he said. It has been 15 years since China opened its current account. Yi admitted that the timeframe is certainly longer than the international norm, but explained this against the country's size and unbalanced development.

Yi, who also directs the State Administration of Foreign Exchange, said the best forex policy option is a managed floating exchange rate regime based on market supply and demand, with reference to a basket of currencies.

China resumed a de-facto peg against the U.S. dollar in July 2008, and up until June 22, 2010, the value of the yuan ranged from 0.1462 to 0.1466 cents, or from 6.82 to 6.84 yuan to the dollar. From July 2005 to July 2008, the value of the yuan strengthened from 0.1205 to 0.1462 cents.

On China's ambition to make the yuan an international reserve currency, Yi said that it requires not only economic power, but also a culture and value system that can be accepted by most other countries and regions.

Responding to speculations on the Chinese economy facing a "double dip," Yi said the probability is small. Nevertheless, he said that the growth rate will inevitably slow down, given the current size of China's economy as well as environmental restraints.

The full interview appears in the August issue of China Reform.