January 27, 2013 / 4:51 PM / in 5 years

Chinese central banker says yuan close to equilibrium: Xinhua

BEIJING (Reuters) - The Chinese currency is trading at a level “relatively close” to equilibrium with the U.S. dollar, a senior central bank official told Xinhua, citing slowing growth in China’s massive foreign reserves as evidence the yuan is coming into balance.

The yuan has lost importance as a source of political and diplomatic friction in the past year, although U.S. presidential candidate Mitt Romney did threaten to impose tariffs if he were elected to offset what he said was a persistent undervaluation.

China’s foreign reserves grew at their slowest pace in five years in 2012 - a sign the value is close to equilibrium, Yi Gang, central bank vice governor, told the state news agency on the sidelines of the Davos forum in Switzerland.

“This means that the central bank doesn’t have to intervene in the market on a large scale, and the slower pace of growth in our foreign exchange reserve is a good thing,” he said.

Yi also said the Chinese government’s promotion of the internationalization of the yuan was proceeding, although many observers have said they doubt it can be used as a major reserve currency given China’s current account restrictions.

“What we are doing now is nothing but remove discrimination against the renminbi and let it act just as other reserve currencies,” Yi told Xinhua, adding that the pace of adoption would depend on the market.

“I would be actually pleased to see people have more confidence in the renminbi and choose it over other currencies thanks to a more sophisticated market, better implementation of China’s monetary policy, China’s macroeconomic stability and social stability, and stronger rule of law,” he added.

Analysts have pointed to two-way movements in daily yuan trading as a sign the yuan is close to fair value.

For many years after China depegged the yuan from the dollar in 2005 and instituted a trading band, the currency steadily appreciated. It was temporarily and unofficially repegged beginning in the summer of 2008 to help stave off the looming global financial crisis.

Reporting By Lucy Hornby; editing by Jane Baird

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