China’s c.bank chief pledges to keep yuan value stable

Beijing echoes IMF pledges to avoid using currency as trade war tool

NUSA DUA, Indonesia, Oct 13, (RTRS): China’s top central banker on Saturday pledged to keep the yuan currency’s value “broadly stable,” a sign that Beijing may be trying to prevent a bruising trade dispute with the United States from spilling over into a currency war.

People’s Bank of China Governor Yi Gang’s statement at the International Monetary Fund and World Bank annual meetings in Bali came as US Treasury Secretary Steven Mnuchin said Chinese officials had told him that further yuan depreciation was not in China’s interest.

Mnuchin has reiterated his concerns that a major drop in the yuan’s value this year against the dollar could be part of an effort to gain a trade advantage for Chinese exports or to offset the impact of US tariffs.

The yuan has fallen more than 8 percent against the dollar since the end of April to about 6.91 on Friday, close to the psychologically important 7.0 level not seen in a decade.

“China will continue to let the market play a decisive role in the formation of the RMB exchange rate,” Yi said in an International Monetary and Financial Committee (IMFC) statement posted on Saturday. “We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.”

His statement echoes currency pledges made in a communique issued by the IMF’s member countries on Saturday to step up their trade dialogue as rising tariff frictions, and higher borrowing costs threaten to knock global growth.

In the statement from the IMF’s steering committee, the member countries also agreed to debate ways to improve the World Trade Organization so it can better address trade disputes.

“We acknowledge that free, fair, and mutually beneficial goods and services trade and investment are key engines for growth and job creation,” the IMFC said in the statement.

“We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes,” it added.

On Thursday, IMF Managing Director Christine Lagarde warned countries against engaging in currency and trade wars, which would hurt global growth as well as “innocent bystander” nations, including emerging markets that supply commodities

Some of these countries, including Indonesia, the host of the IMF and World Bank meetings, are already struggling to contain capital outflows prompted by higher US interests rates.

Fears that rates could spike sharply higher - and the international trade tensions - touched off a searing sell-off in global stock markets over the past week.

European Central Bank Governor Mario Draghi warned on Saturday that a “snap back” in rates and a sharp repricing of asset prices were the biggest risks to the economic outlook.

Federal Reserve Vice Chair Randal Quarles said the US central bank considers the effect of its actions on emerging markets, but getting domestic monetary policy right was the Fed’s priority.

“It’s not going to be in the interest of anyone in the world ... for us to get behind the curve in the US by moderating what we think is the right course of domestic policy,” Quarles told a finance conference in Bali.

Blaming the Sino-US trade dispute and tighter financial conditions in emerging markets, the IMF this week cut global growth forecasts for 2018 and 2019.