China's Central Bank Chief Yi Gang Hints At Ending Currency Intervention

The governor of the People's Bank of China recently said that China can phase out currency intervention by gradually reducing the amount and frequency of its forays into the market. 

Speaking in a seminar during the International Monetary Fund (IMF) and World Bank spring meetings in Washington on Saturday, Governor Yi Gang said that China's central bank will aim to guide monetary policy so that real interest rates move slightly below the potential growth rate, according to Reuters. 

Amid concerns over the banking sectors in the U.S. and Europe, Chinese leaders have pledged to step up support for the world's most populous nation and second-largest economy. 

"We have been trying to stabilize the exchange rate for some time. However, if you go on forever, then one day I would say that markets would defeat the central bank," Yi said.

"If you have the right monetary policy, I think you make sure the market determines the exchange rate and authorities intervene as little as possible," he added.

Also Read: Xi Jinping's 'Made In China' Ambitions Stuck In Mud On Sweeping US Chip Export Bans

The governor asserted that "[while] China reserves the right to intervene in market turbulence, authorities must allow market forces to drive yuan moves more." 

He also explained that China has managed to keep inflation "very stable" around 2% through exchange-rate and monetary policies, adding that the country was pursuing a "balanced" current account instead of running a surplus.

Yi further argued that, while central banks can separate monetary and financial system policies and conduct monetary policy to conquer inflation during "normal" times," these banks cannot do so when a systemic risk puts their country's financial stability in danger

Last week, Yi met Federal Reserve Chair Jerome Powell to discuss the economic situation in the U.S. and China. The last publicly known conversation between the two central bank chiefs occurred on March 2, 2020, when the Fed chief spoke for 17 minutes with Yi over the phone.

Read Next: Summers Says Saudi Arabia's Shift To Russia And China Is A Huge Challenge For The U.S.: 'It's Looking A Bit Lonely On Right Side Of History'

Photo: Shutterstock