China yuan must rise, says Australia bank chief

SYDNEY: Reserve Bank of Australia chief Glenn Stevens on Friday joined calls for China to strengthen the yuan, saying it would be beneficial to the global economy if there was more flexibility.

The central bank governor said the matter had been raised in private discussions with Chinese officials.

"In my opinion, in any objective gauge, the Chinese currency should be higher than it is today," he told a House of Representatives economics committee.

"There is no shortage of people telling the Chinese authorities that."

In recent days Treasurer Wayne Swan repeated warnings on the yuan, urging "large developing economies to put in place policies to boost home-grown demand and move towards more market-based exchange rates".

Swan departs for talks on a range of issues in China on Monday.

Officials argue that the undervalued renminbi gives China an unfair trade advantage, with a weaker yuan making China's imports more expensive while its exports are cheaper for foreign buyers.

Beijing has recently shown signs it is willing to guide the currency higher, with the yuan rising steadily against the US dollar since mid-2010 when Beijing relaxed a de-facto peg to the US currency.

This had been imposed in 2008 to protect its exporters during the global financial crisis.

"They are still doing quite a bit of intervention," Stevens said.

"It is coming up some, but I think it would be beneficial to the global economy, and beneficial to the Chinese people, if there was more flexibility in that price."

Stevens was critical of the political noise that surrounds the issue in Washington, which he warned would not help achieve a resolution on the low renminbi.

"Unfortunately it also gets surrounded by the whole US-China relationship issue. The megaphones come out. There's a bit of shouting to and fro and actually that's not all that productive," he said.

China is key market for Australia's resource driven economy and Stevens said Canberra was well placed to weather any further global financial uncertainty, with growth prospects in key Asian markets remaining strong.

Australian corporate balance sheets were solid, terms of trade at record highs and unemployment low, he said, despite the jobless rate unexpectedly rising 0.1 percentage point to 5.1 percent in July.

"There is a heightened degree of uncertainty at present. There are major challenges in the global economy and significant forces at work in the Australian economy," he said.

"But at this point in time, our terms of trade are at a record high, while our unemployment rate remains low. Inflation bears careful watching, but we can keep it under control.

"Our banks are strong, our currency is sound and our sovereign credit

position is in the international top tier."

Mining-driven Australia weathered the last global downturn without entering recession thanks to the resilience of key export markets such as China.

Stevens said investment in the resources sector was continuing and "has some distance to run yet".

As far as key Asian markets go, he said "indicators suggest some moderation in growth in the Chinese economy. But it appears to be still pretty solid".

"A key question for the countries in the region is whether enough has been done to contain the inflation pressure, which does look to have spread beyond initial rises in food and energy prices," he added.

Copyright AFP (Agence France-Presse), 2010