China’s central bank governor recently highlighted the importance of a stable yuan for global financial markets. In a keynote speech in AlUla, Saudi Arabia, Pan Gongsheng noted that the yuan’s steadiness contrasts sharply with a much stronger US dollar, which has surged after Donald Trump introduced tariffs on Chinese imports.
According to Pan, the yuan’s stability helps maintain global economic equilibrium. He mentioned that China plans to implement macro-prudential policies during times when the yuan’s exchange rate fluctuates significantly, aiming to keep the currency at a stable and balanced level.
China’s strategy involves positioning the yuan as a viable alternative to the US dollar. This push aligns with President Xi Jinping’s vision of strengthening China’s financial influence globally. In recent months, the People’s Bank of China (PBOC) has worked to support the yuan against depreciating pressures, even avoiding monetary easing despite ongoing trade tensions.
The yuan has mostly stayed within a narrow range of 7 to 7.3 against the dollar over the past year. This stability is particularly noteworthy compared to the 2015 devaluation, which led to a significant decline in the currency’s value over time.
In contrast, the US has maintained a strong-dollar policy, according to US Treasury Secretary Scott Bessent. However, this strength poses challenges for emerging markets, like Indonesia, by complicating efforts to reduce borrowing costs and reviving inflationary pressures.
For China, defending the yuan comes with risks. A stronger yuan increases the cost of imports at a time when consumer demand is weak, which could be harmful given the recent deflationary trends. Analysts suggest that China may experience its longest period of price declines since the 1960s, revealing vulnerabilities in its economy.
Pan acknowledged the potential for stronger domestic price growth and consumer demand. He indicated that the economy has historically been driven by investment but now requires greater focus on consumption.
To stimulate consumption, China is implementing policies aimed at increasing household income and creating consumption subsidies. Pan reassured that the economy remains stable and that local government debt and property market risks are being managed. He emphasized a shift towards more proactive fiscal policies and accommodating monetary measures.
China’s leadership is planning increased government spending and interest rate cuts to alleviate the financial strain on households, particularly after a difficult period for the property sector. Boosting consumer spending has become a primary goal this year.
However, China faces challenges from global trade protectionism and geopolitical tensions. Pan reaffirmed China’s commitment to opening its economy and promoting free trade while warning that escalating protectionism could disrupt trade and investment, ultimately harming global economic growth.
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