China says only joint action, not exchange rates alone, can address global imbalances

China's central bank governor, Pan Gongsheng, has stated that exchange-rate adjustments alone cannot resolve global economic imbalances. Speaking at a G20 finance ministers and central bank governors' meeting in Bangkok, Pan emphasized the need for a more comprehensive approach to addressing the issue. He called for surplus and deficit economies to share responsibility for tackling imbalances, rather than relying solely on exchange-rate changes.

According to a readout from the People's Bank of China (PBOC), Pan stressed the importance of examining financial channels and the impact of factors like capital flows on imbalances, as global financial integration deepens. He noted that exchange rates are influenced by various factors, but do not have a simple, direct relationship with a country's current-account balance.

At the meeting, Pan also highlighted growing financial vulnerabilities stemming from sharp swings in sovereign bond markets and potential corrections in AI-related asset valuations. He stressed that financial regulation modernization should not equate to deregulation and must prioritize stability and resilience. Meanwhile, US Treasury under secretary for international affairs, Erin Browne, highlighted the G20's focus on non-market policies, particularly those related to China, and urged the International Monetary Fund to take a more assertive role in addressing these distortions.

China's PBOC has also announced additional steps to meet offshore demand for yuan liquidity, including supporting cross-border yuan lending and trade financing, encouraging overseas institutions to issue panda bonds, and expanding regular currency-swap arrangements with more countries and regions.