The yuan isn't undervalued and China should stick to its policy for a stable yuan, according to Bank of China (Hong Kong) Ltd., which is controlled by one of the Big Four state-owned commercial banks in China.
Still, the bank's February issue of its monthly research document suggests that studies on a wider trading band for the yuan should continue and that feasibility studies to use Hong Kong as a testing ground for yuan reforms should be carried out. This is in preparation for the yuan’s ultimate move to being a freely convertible currency, it said.
Despite repeated calls from the U.S. and Japan for the yuan to be re-valued, given China's fast-growing trade surplus, the bank said China's highly competitive exports are largely due to its low labour costs.
"China's economic achievements today did not originate from the extra competitiveness gained by currency devaluation," said the bank, whose parent is state-owned mainland Bank of China.
