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BEIJING (Reuters) – The governor of China's central bank on Saturday promised to maintain the value of the yuan "relatively stable," a sign that Beijing may seek to prevent a growing trade dispute with the United States from turning into a currency war.
Governor of the People's Bank of China, Yi Gang, made the remarks at the annual meetings of the International Monetary Fund (IMF) and the World Bank in Bali, while US Treasury Secretary Stephen Mnuchin said that Chinese officials had told him that a further depreciation of the yuan was not in China's interest.
Mnuchin said he feared that the sharp devaluation of the yuan this year would be part of efforts to gain a commercial advantage for Chinese exports or offset the impact of US tariffs.
The yuan has fallen more than 8% against the dollar since the end of April, reaching about 6.91 yuan on Friday, which is close to the psychologically important level of seven yuan that has not not been touched in ten years.
"China will continue to let the market play a crucial role in determining the yuan's exchange rate," Yi Yi said in a statement to the International Monetary and Financial Committee. "We will not devalue the currency to improve competitiveness, we will not use the exchange rate to settle trade disputes."
The statement by the governor of the Chinese central bank was in line with the currency commitments included in the final statement issued Saturday by the International Monetary Fund (IMF) to intensify the trade dialogue, while growing trade disputes and an increase in borrowing costs threatens global growth.
In the statement of the IMF Steering Committee, member states also agreed to discuss ways to improve the WTO so that it can better resolve trade disputes.
"We recognize that equitable investment and the free exchange of mutually beneficial goods and services are essential engines of growth and job creation," the International Monetary and Financial Committee said in its statement.
"We will refrain from currency devaluations to improve competitiveness and we will not target our exchange rates for competition."
* High concerns
The Managing Director of the International Monetary Fund (IMF), Christine Lagarde, warned countries on Thursday against monetary war and trade wars that could harm global growth as well as against the "innocent countries, no proximity link", including emerging markets providing commodities.
Some of these countries, including Indonesia, which hosts IMF and World Bank meetings, are already struggling to reduce capital flows displaced by rising US interest rates.
Fears of a sharp rise in interest rates, as well as global trade tensions, led to a liquidation of global stock markets over the past week.
The International Monetary Fund lowered its global growth forecast in 2018 and 2019 last week, attributing it to the trade dispute between the United States and China.
"The recovery is becoming more and more volatile and some of the risks identified in the past have been partially achieved," says the final communiqué, referring to tariffs.
The United States and China have imposed tariffs of several hundred billion dollars on imported products in recent months, following requests by US President Donald Trump for major changes in intellectual property rights China and government support for industry and trade policies.
Trump has often accused China of devaluing its currency for a commercial advantage, which Beijing has always denied.
Despite Chinese central bank's badurances on monetary policy, some badysts believe yuan weakness will persist, with no clear solution for the settlement of the US-China trade dispute and January's expected increase in tariffs .
Any further interest rate hikes by the US Federal Reserve should strengthen the dollar and increase pressure on emerging market economies as a result of capital outflows.
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