China Bank Official: Flexible Yuan Fights Inflation

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A high-ranking Chinese bank official on Monday raised the idea of moving away from the U.S. dollar as the benchmark for his country's foreign exchange rate.

The People's Bank of China Vice Gov. Hu Xiaolian reasoned that loosening the yuan's de facto peg against the dollar would help alleviate inflationary pressures on China's economy as well as make the country's monetary policy more effective.

"The many financial crises since the 1990s have all demonstrated that rigid exchange rates are easily attacked by speculators and thus lead to 'self-fulfilling' currency crises," Hu said.

He also said it would help people get a better understanding of China's trade situation.

"Everything Hu is saying points to the fact that the PBOC wants the currency to strengthen," Brian Jackson, an economist at the Royal Bank of Canada, told the Wall Street Journal. "They are trying to push forward the debate, but they can only move as fast as the slowest part of the bureaucracy."
    
In the past, Chinese officials have also suggested that the world move away from the dollar as the main currency for international commerce.
    
The same suggestion has also been made by Russians, other countries and even a United Nation's report.

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