China has taken firm steps to prevent the risks of exchange rate overshooting, said Pan Gongsheng, Governor of the People’s Bank of China, on Wednesday.

Mr Pan said at the 15th Lujiazui Forum in Shanghai that the RMB (Renminbi, the currency system in China) exchange rate has remained stable in complicated circumstances.

He added that entering this year, the major advanced economies have postponed, yet again, their monetary policy reversal timing, and the China-U.S. interest rate spread has continued to be relatively high.

China’s central bank has maintained the exchange rate’s flexibility by letting the market play a decisive role in its formation.

While strengthening guidance of expectations and taking firm steps to prevent the risks of exchange rate overshooting, Mr Pan said.

The governor said that through sustained efforts over the years, China’s foreign exchange market has achieved substantial progress, with market participants becoming more mature and transacting in a more rational manner.

He added that as the RMB cross-border receipts and payments now account for 30 per cent of trade in goods, the exposure of enterprises to currency exchange risks has been reduced.

Mr Pan said that an increasing number of business entities are using the tools for exchange rate risk hedging.

Mr Pan said China is also more experienced in coping with foreign exchange market fluctuations.

He said that as major economies are gradually reversing their monetary policies this year and the dollar appreciation is weakening, the difference between the monetary policy cycles at home and abroad is narrowing.

Mr Pan said that these factors would help keep the RMB exchange rate stable and balance cross-border capital flows, thereby gaining more space for China’s monetary policy manoeuvres.

(Xinhua/NAN)