Ap­petite for yuan weak­ens as ap­pre­ci­a­tion ends

China Daily (Canada) - - BUSINESS - By GAO CHANGXIN in Shang­hai gaochangxin@chi­nadaily.com.cn

Global enthusiasm for yuan-de­nom­i­nated trans­ac­tions ex­pe­ri­enced a rare de­cline in Fe­bru­ary as the cur­rency’s decade-long ap­pre­ci­a­tion came to a halt, and vo­latil­ity picked up.

The So­ci­ety for World­wide In­ter­bank Fi­nan­cial Telecommunication said on Wed­nes­day that the yuan fell one spot to eighth place in the rank­ing of its most ac­tively traded global pay­ment cur­ren­cies.

Yuan pay­ments de­creased 8.5 per­cent month-on-month, SWIFT said. The agency at­trib­uted the slide to the Lu­nar New Year, which took five work­ing days out of the month.

The yuan’s mar­ket share in global pay­ment cur­ren­cies in­creased to a new high of 1.42 per­cent in Fe­bru­ary. But that was 0.03 per­cent­age point less than the Swiss franc, which it over­took in Jan­uary.

The yuan’s rank­ing has been in­creas­ing steadily over the past fewyears, the re­sult of China’s ef­forts to in­ter­na­tion­al­ize the cur­rency and in­crease its global use to re­flect the na­tion’s grow­ing eco­nomic power.

While there is some con­ve­nience for com­pa­nies to choose the yuan over the US dol­lar in their China-re­lated ac­tiv­i­ties, the re­turn pro­vided by the yuan’s steady ap­pre­ci­a­tion had given them an additional in­cen­tive to hold the cur­rency.

But the in­cen­tive faded as the yuan’s re­cent slump shat­tered ex­pec­ta­tions of one-way ap­pre­ci­a­tion. The yuan has weak­ened by about 2 per­cent since Jan­uary, af­ter strength­en­ing more than 40 per­cent since 2005, when China last re­formed its for­eign ex­change regime.

Ear­lier this month, the People’s Bank of China (the cen­tral bank) dou­bled the daily

The yuan will sta­bi­lize af­ter a while. There are no fun­da­men­tals to sup­port a sus­tained de­pre­ci­a­tion.” GAO TING UBS SE­CU­RI­TIES AG’S CHIEF CHINA STRATE­GIST

trad­ing band to 2 per­cent around the daily ref­er­ence rate, in a move to pro­mote twoway move­ment be­fore mak­ing the yuan a free-float­ing cur­rency. That fur­ther weak­ened ex­pec­ta­tions for a stronger yuan.

On Thurs­day, the yuan closed 0.06 per­cent lower thanWed­nes­day at 6.2130, amid a 0.04 per­cent drop in the daily ref­er­ence rate to 6.1465.

Gao Ting, UBS Se­cu­ri­ties AG’s chief China strate­gist, told re­porters on Wed­nes­day that the yuan’s de­pre­ci­a­tion is tem­po­rary.

“The yuan will sta­bi­lize af­ter a while. There are no fun­da­men­tals to sup­port a sus­tained de­pre­ci­a­tion,” said Gao.

UBS has fore­cast that the yuan will trade at 6.1 at the end of this year.

Ac­cord­ing to SWIFT, yuan pay­ments surged in Aus­tralia in Fe­bru­ary, ris­ing 248 per­cent from a year ear­lier and plac­ing Aus­tralia sixth for yuan pay­ments by value. That rank­ing ex­cludes the Chi­nese main­land and the Hong Kong Spe­cial Ad­min­is­tra­tive Re­gion.

In Fe­bru­ary, 14.2 per­cent of pay­ments be­tween Aus­tralia and the Chi­nese main­land/Hong Kong SAR were in ren­minbi, com­pared with 7.7 per­cent and 1.9 per­cent in 2013 and 2012, re­spec­tively.

Bill Do­ran, head of Ocea­nia for SWIFT, said in a state­ment that about 98 per­cent of the pay­ments were in­sti­tu­tional.

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