WASHINGTON (AFX) - Chinese central bank governor Zhou Xiaochuan defended the gradual pace of adjustment in the currency's exchange rate regime.
'Each country is entitled to choose an exchange rate system consistent with its own economic development,' he said in prepared remarks to the IMF's policymaking committee.
G7 finance ministers and central bankers yesterday issued an explicit call for China to go further to make the yuan's exchange rate regime more flexible.
'Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur,' they said.
But because China's markets and institutions are still developing, 'it is hard to obtain a dependable estimate of their equilibrium exchange rate levels,' Zhou said.
He said IMF currency surveillance is welcome within the fund's objective of promoting stability and respecting the autonomy of its member countries.
But he said the IMF should focus its attentions not on the yuan, but on the dollar.
'Global trade, settlements and reserve assets are heavily reliant on a single currency,' he said. 'The fund should give priority to establishing a surveillance and check-balance mechanism of the major reserve currency countries.'
'Favourable conditions in the financial markets do not rule out the possibility of a sudden reversal in sentiment,' he added.
The lack of coordination in the G7 on monetary policy 'could result in large and volatile movements of financial markets', he said.
'We cannot ignore the risk of disorderly adjustments in financial markets,' he said.
And he said it is up to the developed nations to use this period of strong growth to restructure their own economies to rebalance global trade and capital flows and to dampen protectionism.
'In particular, the developed countries, while enjoying low cost imported goods and services, have to restructure their industrial sectors quickly to create job opportunities and export advantages to improve their competitiveness and dampen protectionism,' he said.
China has moved to 'expand domestic demand, encourage consumption, open its markets, improve the exchange rate regime and restructure trade,' Zhou said. steve.whitehouse@afxnews.com mw/sw COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited