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Chinese Premier Wen Jiabao announced China's plan to reform its currency policy. A move towards a freer currency would raise the value of the yuan, or RMB. This could be a good sign for foreign businesses hoping to get a foothold in Chinese markets, but bode ill for China's exports.
At his latest national news conference, Premier Wen Jiabao said Chinese authorities are reforming their monetary policy and curbing inflation. This came in response to a downturn in China's economy, giving a bleak forecast for the growth rate in 2012.
Wen's remarks were cautious in tone. Even while announcing plans for reforms, he suggested that China's currency was close to a satisfactory value already.
[Wen Jiabao, Chinese Premier]:
"China's RMB exchange rate is possibly near a balanced level. We will step-up exchange rate reforms, especially in increasing two-way fluctuations."
And through these tentative announcements, Wen warned that reform would be undertaken slowly to keep the economy stable.
[Wen Jiabao, Chinese Premier]:
"Now, I can clearly tell everyone, home prices are still far from returning to reasonable levels, and as such, regulation cannot be relaxed. If they are relaxed, our achievements will have come to naught."
China has been under mounting pressure from foreign businesses and governments to raise its currency. Foreign businesses have difficulty selling their products in China, where domestic goods are cheaper than imported. This has created friction between China and the international community, which could be one reason why the world's largest national exporter is changing tact.
