(Yicai Global) July 25 -- The International Monetary Fund recently published the minutes of the Fifth Joint Conference People's Bank of China and IMF, which was themed Strengthening Financial and Exchange Rate Frameworks: International Experience and Relevance for China.
"We are aware that long-term and large-scale capital controls are not able to effectively cope with capital outflow pressures," Chen Yulu, vice governor of China's central bank, was quoted as saying at the event. "Instead of introducing new foreign exchange control measures, China has asked banks to comply with and strictly implement existing foreign exchange rules and strengthen background checks. China's foreign exchange control regulations have not changed."
Every March or April, the PBOC and the IMF invite policy makers, staff from the PBOC and IMF, and Chinese government agencies and experts to a seminar. Past meetings focused on the international monetary system and debt management; financial liberalization, innovation, and stability; monetary policy; and capital flows management. This year the spotlight was on exchange rate policy.
China had faced a certain devaluation of the exchange rate and capital outflow pressure previously, but now the foreign exchange market has stabilized, Chen said. In the medium and long term, the yuan has proved its stability in the international monetary system, he said. China's foreign exchange reserves remain one of the largest in the world after falling to around USD3 trillion from a peak of USD4 trillion in 2014.
Capital outflows began to slow sharply from the first quarter of this year, and foreign exchange supply and demand are already almost balanced, said Chen.
The PBOC will continue to improve the yuan exchange rate formation mechanism, and enhance the closing rate + a basket of currencies price setting for the central parity rate of the yuan against the US dollar, he said. The country will make the exchange rate mechanism more transparent and market-oriented to better reflect changes in supply and demand. Through these reforms, a flexible system based on supply and demand with two-way fluctuations will help the yuan exchange rate stay balanced and stable, he said.