The OECD welcomes the announcement by the Chinese authorities of an increase in exchange rate flexibility. Even though more information is required to fully understand the measures that will be taken, the OECD considers that a gradual appreciation of the exchange rate will help mitigate domestic inflationary pressures in China, while making monetary policy more effective. It will also help boost household consumption and reinforce the sustainability of growth in China.
Such a shift would be further strengthened by stepping up the ongoing reforms of pensions and health care insurance, which would reduce the need for precautionary household saving. Pushing ahead with financial market reform can work in the same direction, and also help put a lid on corporate over-saving by giving smaller firms better access to credit.
“A combination of sustained fiscal expansion, continued structural reform and exchange rate flexibility, should provide a strong contribution from China to the achievement of a strong, sustained, and balanced growth of the world economy,” OECD Secretary-General Angel Gurría said in welcoming the move.