THE volatility of the global financial markets has become a “new normal,” while the spillover effects of Chinese market fluctuations have been exaggerated, a deputy chief of the International Monetary Fund (IMF) said Friday.

    Repeated, short-term and frequent fluctuations are becoming the new normal of the global financial market, said IMF Deputy Managing Director Zhu Min at the World Economic Forum in Davos, Switzerland.

    He said the main reason of the volatility since the beginning of the year is that global economic growth has not reached the required level for interest rates to rise.

    Stressing that the Chinese market is a part of the buffeting global financial market, Zhu said the spillover effects of the Chinese market fluctuation and potential ensuing risks have been exaggerated.

    More and more people realized that China’s economic transformation was not fully understood, Zhu said.

    Zhu said it was an unconditional decision that the yuan was added to the IMF Special Drawing Rights (SDR) basket, adding that there are no conditions attached to the yuan exchange rate and its convertibility.

    He said the market is only focusing on the decrease in yuan exchange rate against the U.S. dollar, without understanding its connotation — the yuan-dollar rate is not fixed any more because the yuan is managed under a floating mechanism and fluctuates according to the market.

    To reduce the market’s fixation on the yuan-dollar rate and better reflect the market, the China Foreign Exchange Trade System began to release a yuan exchange rate composite index in December that measures the currency’s strength relative to a basket of 13 currencies, including the U.S. dollar, the euro, and the Japanese yen.

    The yuan’s exchange rate will be determined with more reference to the basket of currencies, said Ma Jun, chief economist of the People’s Bank of China’s research bureau.

    In Zhu’s opinion, the move shows that China’s central bank wants to increase market transparency. “In this direction, the yuan exchange rate mechanism will become increasingly flexible.” (Xinhua)