Slow growth in reserves

(China Daily)
Updated: 2010-04-14 08:21
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Editor's note: Although the exchange rate of yuan against US dollar remained basically unchanged, the growth of China's foreign exchange reserves in the first quarter declined sharply and China recorded its first monthly trade deficit in six years. All this clearly refutes the Western accusation that China is manipulating its currency.

A sharp decline in the growth of China's foreign exchange reserves in the first quarter over the previous one is not necessarily sufficient evidence that the yuan is not undervalued.

But it clearly refutes the accusation that the country is manipulating its currency to increase its trade surplus. US politicians and economists blaming Beijing for undervaluing the yuan to boost its exports should really rethink their argument.

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Slow growth in reserves China's forex reserves rise to $2.45t

The Chinese central bank reported that China's foreign exchange reserves rose by $48 billion to about $2.45 trillion by the end of March, compared with a $126 billion rise in the fourth quarter of 2009.

Obviously, the moderation in the growth of reserves is closely related to ongoing changes in China's trade balance. Since late 2008, its trade surplus narrowed such that last month, it recorded its first trade deficit in six years.

All this happened when the exchange rate of the yuan against the US dollar remained basically unchanged. It shows the huge gap between US criticism over China's currency policy and economic reality.

If US politicians admit that the exchange rate is not the main factor determining trade flows, they should understand that by politicizing the Chinese currency issue, they are actually standing in the way of China reforming its currency regime.

A slowdown in the growth of reserves offers Chinese policymakers a good opportunity to promote currency reform in line with changes in the global economy and the country's economic situation.

(China Daily 04/14/2010 page8)