Chinese banker issues foreign exchange fluctuation warning

Substantial fluctuations in foreign exchange rates could damage global economies, the vice-governor of China's central bank has warned.

Hu Xiaolian said "certain flexibility" in exchange rates can be a good thing.

However, she insisted: "Large fluctuation in foreign exchange rates is harmful."

She pointed to the situation in the eurozone as an example, where a sharp depreciation of the single currency has hit financial market confidence.

Ms Xiaolian said looking at a country's current account position gives a good indication of whether its currency is overvalued or undervalued.

Her comments come after the People's Bank of China said it wanted to introduce greater flexibility to the yuan exchange rate.

The currency, which is also known as the renminbi, has been pegged to the US dollar for the last two years.

Ms Xiaolian suggested that the strength of a local currency should be judged against more than one other currency in order to "reflect changes in economic dynamics against other countries".

Posted by Sarah Pitton

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