As China's rising currency begins to raise concerns over how it may impact exporter profits, it’s also creating headaches for the country’s financial regulators, as risks of more hot money flowing into China arises.
In April and May, the Chinese yuan set record high after record highs versus the US dollar. Nine times to be exact.
In the first quarter of this year, China’s foreign exchange reserves increased by 130 billion U.S. dollars, already matching the increase seen in the whole of 2012. This is creating certain headaches for the country’s financial regulators.
Chen Yulu, Monetary Policy Committee of People’s Bank of China, said:"On one hand, a stronger yuan will continue to increase liquidity domestically and could sustain high housing prices. On the other hand, it will dent exporter profits and may bring about more price pressures for consumers.
Since the beginning of May, a number of global central banks joined the ranks of the United States and Japan in conducting radical monetary policy, deepening the uncertainty for the global economy.
Chen Yulu said:"Uncertainty is a basic tenet of international finance. Ultra loose monetary policies continue while its effects on the real economy remains uncertain. The U.S. stock market is hitting record highs, while real estate price there are also increasing...causing some people to worry about an asset bubble in these asset classes."
Chen says China should cushion against the risks of monetary expansion from developed nations. He suggests broad money supply growth should not be higher than the 13-percent target, while also calling for more controls on total social financing, a broader measure of total credit slushing around the Chinese market, this year and next.