China urged to anchor yuan to non-US dollar currencies to empower domestic tools
China Finance 40 Forum think tank suggests temporarily anchoring the yuan to a basket of currencies, particularly the euro
China’s policymakers should consider anchoring the yuan exchange rate to a basket of non-US dollar currencies to create more flexibility for domestic monetary policies aimed at boosting demand, according to a prominent Beijing-based think tank.
The proposal by the China Finance 40 Forum, which is made up of senior Chinese regulatory officials and financial experts, comes as Beijing is struggling to balance the need for looser monetary policies to stimulate the economy, while also maintaining an interest rate spread with the US dollar amid rising external risks.
To counter the pressures, the think tank suggested temporarily anchoring the yuan to a basket of currencies, particularly the euro, which it said would grant “greater flexibility against the dollar”.
“This would free the exchange rate from tight fluctuation bands, so that it can better reflect shifts in the domestic and international economic environment, and create more room for adjustments in domestic monetary policy,” the forum added.
Financial News, a publication supervised by the People’s Bank of China, said on Wednesday that the yuan’s exchange rate had a “solid foundation” to “remain basically stable”, and was poised to stabilise or strengthen by the end of the year, following a Reuters report that Beijing was considering allowing the yuan to depreciate next year – possibly to 7.5 per US dollar – to offset the impact of the tariffs proposed by Trump.
