PBOC: Need reforms, not exchange rates, to address global imbalances

The People's Bank of China (PBOC), China's central bank, issued a detailed statement on October 8 setting out its position on the RMB exchange rate.

This came amid heightened interest in the renminbi's exchange rate in light of widening global economic imbalances.

An April policy paper by the International Monetary Fund (IMF) noted that the decade-long trend of declining imbalances had reversed.

Asserting its stance, the PBOC said China has no need or intention of gainning a trade advantage through currency devaluation and has never resorted to competitive devaluation.

China operates a managed floating exchange rate regime based on market supply and demand, with reference to a basket of currencies, the statement said.

Market forces play a decisive role in determining the RMB exchange rate.

Remarks by Chinese financial officials in the days that followed returned to a broader point: exchange-rate adjustments alone cannot resolve the structural causes of global imbalances.

At the 54th meeting of the International Monetary and Financial Committee, held in Bangkok from October 16 to 17, PBOC Governor Pan Gongsheng discussed the global economic outlook and the role of the IMF.

The meeting noted that the global economy had performed better than expected despite geopolitical shocks, while rising trade tensions had added uncertainty, and rapid advances in artificial intelligence had increased the risk of divergence.

Downside risks remained, participants said, underscoring the need to safeguard macroeconomic and financial stability and address common challenges through international cooperation.

Pan said the IMF, as the leading multilateral financial institution, should clearly oppose protectionism, uphold multilateralism and promote international cooperation and policy communication.

He said the IMF should use economic surveillance, lending support and technical assistance to help members manage rising risks and safeguard global financial stability.

Pan also pointed to the effects of structural factors, including inherent weaknesses in the international monetary system.

He said that addressing global imbalances requires countries to pursue their own structural reforms.