China's central bank governor Zhou Xiaochuan said on Friday that China would continue to promote an exchange rate mechanism which meets higher standards of market economy in the next stage.
In this regard, China will continue to promote more flexible exchange rate, free flows in capital and current accounts, convenient convertibility between Chinese currency and foreign currencies, and to provide more risk-management instruments for both domestic and international investors, Zhou, governor of the People's Bank of China (PBOC), said at the Michel Camdessus Central Banking Lecture held by the International Monetary Fund (IMF) on Friday.
In the question and answer session, Zhou said that these moves could also help deepen the connection between the Chinese economy and the global economy, as China was getting more integrated into world economy. China is reducing unnecessary controls over the exchange rate market, and introducing more risk-management instruments, such as foreign exchange swaps and derivatives, to help Chinese businesses and citizens get prepared for a possible more volatile exchange rate market, said Zhou.
IMF last year approved the inclusion of the Chinese currency, RMB, into its Special Drawing Rights (SDR) basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound, marking a milestone in the RMB global march.
Zhou said that China is expecting the wider use of SDR, and is taking measures to promote freer use of RMB in trade, investment and financial markets, in an effort to reduce barriers for SDR users.
In regard to Chinese firms' high leverage ratio, Zhou said that China is working to improve the economy's resources allocation, and to ensure more resources flowing to the private sector, high-tech companies and the service sector. Meanwhile, Chinese regulators are working together to analyze the rooted problems for companies with high leverage ratios and take coordinated measures to solve these problems, such as promoting syndicated loans, urging banks to reduce their leverage, promoting corporate governance reform, and strengthening investor education, he said. China is strengthening its supervision over fast growing shadow-banking activities, said Zhou.
He noted that some challenges remained, citing that the strict capital requirements for banks would lead them to pursue businesses free from capital regulation; the booming development of internet financing business was testing the boundary of regulatory policies. If internet companies operate financial business, they should also follow the current regulatory policies, said Zhou.
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