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China supports strong US dollar, says official

Beijing hopes for an orderly solution following recent market turbulence

(CAPE TOWN) China supports a ‘strong dollar’ because it would be conducive to fostering a healthy global economic system, the country’s central bank governor Zhou Xiaochuan said yesterday.

Speaking to reporters, Mr Zhou said that Beijing hoped for an orderly solution following recent market turbulence stirred by defaults of US mortgages. ‘So in this sense, actually we hope to see a strong dollar,’ he said. ‘We support a strong dollar,’ he added.

The US dollar’s recent slide was a major topic of discussion at a weekend summit of financial leaders of the Group of 20 (G-20) economic powers and is expected to top the agenda at a current meeting of central bank governors in Cape Town.

The opinions of different central banks towards the US dollar were ‘close to each other’ in the context of international gatherings such as the G-20 and the International Monetary Fund (IMF), Mr Zhou said.

Turning to the domestic economy, Mr Zhou said that Beijing need not raise interest rates too frequently given that current inflationary pressures were coming mainly from rising food prices.

But China could not rule out further interest rate rises although none were on the cards ‘next week’.

Given excess liquidity in the economy, however, China would continue to raise banks’ reserve ratios, he said.

China’s central bank has raised interest rates five times this year to curb inflation and prevent real returns on bank deposits from sinking too far into negative territory.

Earlier this month, China announced that it would raise banks’ reserve ratio by 0.5 percentage points to 13.5 per cent, a record high. The central bank said that the move would take effect on Nov 26.

China would also consider letting its currency move more freely if necessary although it is comfortable with current settings, Mr Zhou said. China will gradually widen the band within which the yuan is allowed to trade, he said.

 

Source: Reuters, AFP (Business Times 20 Nov 07)

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