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Attack on RMB exchange rate 'unfair'

Xinhua, January 28, 2012

Attack on China's currency exchange rate is totally unfair, as the renminbi (RMB), also known as yuan, has been continuously appreciating, an adviser to China's central bank said here on Friday.

"RMB exchange rate has probably caused the biggest misunderstanding between China and the world," Li Daokui, a member of the monetary policy committee of the People's Bank of China (PBOC) told Xinhua in an exclusive interview.

"Perceptions about the RMB exchange rate in the international community are absolutely groundless, as the yuan is probably the only emerging economy's currency that has been rising against the US dollar since August last year," said Li.

"Take India's rupee for an example. The currency has declined about 20 percent against the US dollar, while the yuan has been rising continuously, moderately and progressively," Li told Xinhua on the sidelines of the Annual Meeting of World Economic Forum in Davos.

Since the Chinese government embarked on the reform of the RMB exchange rate mechanism in June 2010, the currency has appreciated by more than 7.5 percent against the US dollar, according to the PBOC.

Taking into account the higher rate of domestic inflation in China compared with the United States, the yuan has appreciated even more against the US dollar, according to a report submitted by the US Department of Treasury to the US Congress on international economic and exchange rate policies in December.

The RMB has risen against the US dollar on a real, inflation-adjusted basis by nearly 12 percent since June 2010 and nearly 40 percent since China first initiated its currency reform in 2005, said the report.

"Especially during October and November, many Chinese private investors started to spend the Chinese currency buying US dollars, which is an indication that the currency is near an equilibrium level," Li said.

Thanks to a stronger yuan, China's trade surplus has shrunk from about 8 percent of the country's gross domestic product (GDP) before the financial crisis in 2008 to 2.3 percent registered in 2011, according to the PBOC.

Li expected China's trade surplus to further decline in 2012 to 1 percent, mainly due to the stronger Chinese currency, which means the reform of the yuan's exchange rate mechanism has been successful.

"However, people in the international community don't even know the latest figures and their minds are filled with the old figures about China's trade surplus," the central bank adviser said.