PBOC Governor: "Gradual Reduction of Foreign Exchange Market Intervention Possible"

Yi Gang, Governor of the People's Bank of China, the country's central bank, stated on the 15th (local time) that Chinese authorities may gradually reduce their intervention in the foreign exchange market, according to foreign media reports.

At a seminar held at the Peterson Institute for International Economics (PIIE) in Washington DC on the same day, Governor Yi said that by gradually reducing the scale and frequency of market interventions, the foreign exchange market intervention could be phased down. He added that the People's Bank of China would lead monetary policy so that the real interest rate slightly underperforms the potential growth rate.

Foreign media explained that his remarks emphasize the Chinese government's determination to continue promoting the internationalization of the yuan.

Governor Yi is visiting the United States to attend the International Monetary Fund (IMF) and World Bank Spring Meetings. He said, "We have tried to keep the exchange rate stable for some time," and added, "I will not say there is no market intervention." He then predicted that history will soon show that the market will defeat the People's Bank of China.

The U.S. Treasury Department has criticized China's exchange rate management as lacking transparency in its semiannual foreign exchange reports. In the November report last year, it pointed out that China provides only limited information even regarding the policy objectives of its exchange rate management system.

Governor Yi stated, "If there is the right financial policy, the exchange rate should be determined by the market, and authorities' intervention should be minimized as much as possible," adding, "China has the authority to intervene when the market is volatile, but authorities should allow market forces to further guide the yuan's movements." He further said, "Interest rates are key, and exchange rates are determined by the market. That is the fundamental message I want to convey."

However, he drew a line by saying, "There is no set date for when the yuan will be freely convertible," and added, "The basic policy is to enhance the convenience of using the yuan."