The volatility of the global financial markets has become a "new normal," while the spillover effects of Chinese market fluctuations have been exaggerated, a deputy chief of the International Monetary Fund (IMF) said Friday.
IMF Deputy Managing Director Zhu Min made the remarks in an interview with Xinhua on the sidelines of the 46th World Economic Forum annual meeting in Davos, Switzerland.
NEW NORMAL
Repeated, short-term and frequent fluctuations are becoming the new normal of the global financial market, Zhu said,
He said the main reason of the volatility since the beginning of the year is that global economic growth has not reached the required level for interest rates to rise.
Stressing that the Chinese market is a part of the buffeting global financial market, Zhu said the spillover effects of the Chinese market fluctuation and potential ensuing risks have been exaggerated.
More and more people realized that China's economic transformation was not fully understood, Zhu said.
Zhu suggested that the Chinese government increase transparency and launch publicity campaigns to let the world know about the changes underway in the country's economy.
Besides, the outside world needs to better understand the problems China has encountered in the process of its economic transformation. That would allow the impact the Chinese economy can exert on global financial markets to be reduced, he said.
RMB EXCHANGE RATE
Zhu said it was an unconditional decision that the Chinese currency renminbi (RMB), or the yuan, was added to the IMF Special Drawing Rights (SDR) basket, adding that there are no conditions attached to the RMB exchange rate, RMB convertibility and so on.
He said the market is only focusing on the decrease in RMB exchange rate against the U.S. dollar, without understanding its connotation -- the yuan-dollar rate is not fixed any more because the yuan is being managed under a floating mechanism and fluctuates according to the market.
To reduce the market's fixation on the yuan-dollar rate and better reflect the market, the China Foreign Exchange Trade System began to release a yuan exchange rate composite index in December that measures the currency's strength relative to a basket of 13 currencies, including the U.S. dollar, the euro, and the Japanese yen.
The Chinese yuan's exchange rate will be determined with more reference to the basket of currencies, said Ma Jun, chief economist of the People's Bank of China's research bureau.
In Zhu's opinion, the move shows that China's central bank wants to increase market transparency. "In this direction, the RMB exchange rate mechanism will become increasingly flexible."
PUSHING FOR GLOBAL MONETARY SYSTEM REFORM
China decided to push for the reform of the international monetary system under the G20 framework, Zhu said, adding that it is very important for China to be actively involved in global rule-making.
"This is the unshirkable responsibility the world's second largest economy should take," he said.
There was a reform group under the international monetary framework before, but it was suspended later, Zhu said.
China has decided to restart the group and play an important role in promoting the reform of the international monetary system, he said.
An important part of financial reform is reforming monetary systems, Zhu said, saying that China's currency reform made progress in the past three months, establishing a more flexible RMB exchange rate regime and the Cross-border Inter-bank Payment System.
The achievements in China's currency reform are conducive to stabilizing both the Chinese and world economy, he said.
Zhu believed that a floating exchange rate system is the first line of defense against large-scale capital flows and volatility. "It is an extremely important strategy that China's central bank chose a drifting management system of exchange rate," he said.
