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Governor of the People’s Bank of China, Zhou Xiaochuan and IMF Managing Director Strauss-Kahn at the Macro-Prudential Policies—an Asian Perspective conference, Oct 18, 2010, Shanghai, China.
China will continue to promote gradual exchange rate reforms,
even while the yuan is expected to stabilize at a reasonable level, said Yi
Gang, head of the State Administration of Foreign Exchange (SAFE) Monday in
Yi, also deputy governor of the People's Bank of China (PBOC), the central
bank, made the remarks at a seminar held by the International Monetary Fund
(IMF) to discuss the theme "Macro-Prudential Policies -- an Asian
"The flexibility of the yuan has increased since China launched exchange
rate reforms in June. We will further boost those reforms, but the process will
be gradual," Yi said.
"Judging from the markets, the yuan can remain stable at a reasonable and
balanced level," he said.
China will also continue to expand domestic demand and boost construction in
rural medical services, education and infrastructure, he said.
Five years ago, China abandoned a decade-old peg to the US dollar and allowed
its currency to fluctuate against a basket of currencies and appreciate by 2.1%.
Since then, the yuan has strengthened further, albeit slowly, and has risen
more than 21% against the US currency.
Excessive volatility in the exchange rates could
harm global economy, the head of the Eurogroup of Eurozone finance
ministers, said on Monday after the euro
touched a nearly nine-month high against the US dollar recently.
"We did talk about exchange rate situation," Luxembourg Prime
Minister Jean-Claude Juncker said after chairing a monthly meeting
of the finance ministers. "It is important that exchange rates
should reflect economic fundamentals."
In Shanghai, central bankers and other senior financial officials
from around the world discussed in Shanghai ways of reinforcing the
stability of a global banking and financial system still vulnerable
to the shocks that triggered the recent international financial and
Calling for continued global cooperation, Dominique Strauss-Kahn,
Managing Director of the International Monetary Fund (IMF) said Asia
was leading the world recovery after the recession, but fixing the
fragilities of the international financial system remained a top
How to prevent another systemic breakdown—when financial sector
problems can spread rapidly and infect the real economy and jobs—was
the topic of a high-level conference in Shanghai on October 18.
Senior central bank officials from Asia, Europe, North and South
America, and Africa came together in Shanghai to debate the issue.
The conference on “Macro-Prudential Policies: Asian
Perspectives” was sponsored by the IMF and hosted by the
People’s Bank of China (PBC). Lead speakers included the Governor of
the People’s Bank of China, Zhou Xiaochuan, IMF Managing Director
Strauss-Kahn, IMF First Deputy Managing Director John Lipsky, and
as mentioned above, PBC Deputy Governor Yi Gang.
Participants from about 25 countries attended the closed-door
meeting, and included central bank governors and deputy governors,
along with other senior policymakers and regulators.
Importance of policy coordination
The Shanghai conference served to underscore the importance of
dialogue and policy coordination linking the advanced economies,
emerging market economies, and developing economies. “The great
challenges of today all require a cooperative solution—especially if
we are to achieve strong, sustainable, and balanced global growth in
the years ahead,” said Strauss-Kahn in his
Speaking at a closing press conference, PBC Deputy Governor Yi
Gang added that the the conference had reached an “important consensus”
on international cooperation in ensuring strong macro-prudential
policies, because systemic risks “are very likely to spread over
borders.” He also pointed to consensus on the need to have clear
lines of responsibility in addressing macro-prudential
issues--especially in the area of information gathering -- and the need
to foster close cooperation between central banks and other national
One key purpose of the Shanghai conference was to integrate the
lessons learned from the financial turmoil of the global crisis.
“This is directly related to today’s conference, which has reflected
months of hard work by PBC and IMF staff,” IMF officials said.
“Future growth must be safer growth, less prone to financial
excess and the build-up of macroeconomic imbalances. So financial
sector and macro-prudential policies are like the glue that holds
the system in place.”
Range of risks
During the crisis, troubles in one institution quickly
spread—leaping across national borders - - to threaten the whole complex
web of financial relationships. The global crisis showed that simply
looking at the safety and soundness of individual financial
institutions in isolation is not sufficient; supervisors need to be
aware of and respond to a range of systemic risks—and to understand
clearly where responsibility lies for addressing those risks.
Another lesson was that policymakers need to avoid complacency in
the face of asset price and credit booms. “Clearly, conventional
macroeconomic policies and macro-prudential tools are intrinsically
linked, just as price stability and financial stability are
intrinsically linked,” Strauss-Kahn said. “We need a holistic
approach, which means a changing role for central banks in the years
The Shanghai conference addressed a range of issues related to
macro-prudential policies -- meaning policies that focus on the
financial system as a whole and attempt to limit system-wide
distress through regulation and better supervision.
The conference sought to define the institutional contours of a
new macro-prudential policy framework, and the range of tools that
could be applied to mitigate systemic risk and limit procyclicality,
including regulatory norms and taxes.
Officials discussed country experiences - - including from within the
Asian region - - with a particular emphasis on the interaction of
macro-prudential policies and capital flows.
They also discussed the implications of a macro-prudential
approach for central bank policies.
“This is a time of rather great anxiety with respect to currency movements,” David Schmittlein, dean of MIT Sloan School of Management, told CNBC:
At the same time, the conference was intended to highlight the
growing importance of Asia in the global policy discussion,
especially as the region’s policymakers are taking important steps
in the post-crisis period to implement macro-prudential measures to
strengthen the system.
The Shanghai conference followed a
major gathering in July 2010 in Daejeon, South Korea, that is
claimed to have
marked a new stage in the Fund’s relationship with the region. The Daejeon conference brought a consensus for a stronger IMF role in
Asia, with the Fund making its analysis more useful to Asian
policymakers, strengthening the global financial safety net, and
enhancing Asia’s voice in the global economy.