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The deputy governor of the People's Bank of China has weighed into the exchange rate debate, saying a more flexible exchange rate system will help to contain inflation and asset bubbles.
Hu Xiaolian says it would also help strengthen China's resilience to external shocks. She cited imports as an example if the yuan rate is allowed to increase to a certain level, imported goods will become cheaper. Hu also notes that exchange rate flexibility can slow the pace of capital inflows, and the accumulation of foreign exchange reserves.
The central bank's top priority is to prevent the risk of inflation, for which monetary policy is the most important and most effective macroeconomic policy.