Yuan reaches one- year high

Ex­perts say strength­en­ing trend won’t last

Global Times - - Front Page - By Xie Jun

The yuan’s ap­pre­ci­at­ing trend con­tin­ued on Wed­nes­day, with the cur­rency’s cen­tral par­ity rate against the US dol­lar reach­ing a one- year high.

The yuan’s ref­er­ence rate against the US dol­lar reached 6.6102 on Wed­nes­day, strength­en­ing by 191 ba­sis points com­pared with Tues­day.

So far in 2017, the yuan’s ref­er­ence rate has surged by about 4.9 per­cent in to­tal.

On Wed­nes­day, off­shore yuan gained by 0.15 per­cent to 6.5984 as of press time, while on­shore yuan also strength­ened by 0.06 per­cent to 6.5899 by that time.

The yuan started to show a de­pre­ci­at­ing trend in mid- 2015, when the cen­tral gov­ern­ment launched a re­form of the cen­tral par­ity ex­change rate mech­a­nism, but the cur­rency has firmed up this year.

Zhou Yu, di­rec­tor of the Research Cen­ter of In­ter­na­tional Fi­nance at the Shang­hai Acad­emy of So­cial Sciences, said that the yuan’s ap­pre­ci­a­tion has been a bit “too strong” in 2017.

“This trend won’t last very long,” he noted.

Mixed fac­tors

Xi Jun­yang, a fi­nance pro­fes­sor at the Shang­hai Univer­sity of Fi­nance and Economics, said there have been sev­eral fac­tors this year that have caused the yuan to ap­pre­ci­ate.

“The weak­en­ing dol­lar and the re­bound­ing do­mes­tic econ­omy are two of those fac­tors,” Xi told the Global Times on Wed­nes­day.

The US Dol­lar In­dex, which mea­sures the value of the dol­lar rel­a­tive to other cur­ren­cies, was at 92.7 as of press time on Wed­nes­day, com­pared with 102.18 on Jan­uary 2, the first trad­ing day in 2017.

“The US dol­lar’s dep­re­ca­tion might have had some­thing to do with peo­ple’s dis­ap­point­ment with President Donald Trump’s poli­cies, as well as the ap­pre­ci­at­ing trend in other cur­ren­cies like the Ja­panese yen and the euro,” Zhou noted.

Ac­cord­ing to Zhou, the gov­ern­ment’s tighter con­trols on cap­i­tal out­flows, par­tic­u­larly by big do­mes­tic com­pa­nies, have also con­trib­uted to the yuan’s ap­pre­ci­a­tion.

On Au­gust 18, the cen­tral gov­ern­ment placed re­stric­tions on over­seas in­vest­ment in busi­nesses such as real es­tate, ho­tels and sports clubs.

‘ Won’t last long’

But an­a­lysts told the Global Times on Wed­nes­day that it won’t be long be­fore the yuan starts to de­pre­ci­ate again.

“The yuan has ap­pre­ci­ated a lot this year. I think the mar­ket will ini­ti­ate self­ad­just­ment soon, maybe along with a cer­tain level of gov­ern­ment in­ter­ven­tion,” Zhou noted.

Ac­cord­ing to Xi, the fac­tors that have prompted the re­cent rise in the yuan are not strong enough for it to be a sus­tained rise.

“The US dol­lar has dropped to a cer­tain ex­tent and won’t drop much fur­ther, and the do­mes­tic econ­omy has just re­bounded but not thor­oughly re­cov­ered,” he said.

“The space for the yuan’s fur­ther ap­pre­ci­a­tion is lim­ited. It is un­likely to strengthen be­yond 6.5 by the end of this year,” Xi noted.

Xie Yax­uan, a se­nior econ­o­mist with China Mer­chants Se­cu­ri­ties, also said in a note sent to the Global Times that the yuan’s ap­pre­ci­a­tion won’t last till the end of this year as the US dol­lar might re­bound soon.

Ac­cord­ing to Zhou, the yuan’s con­tin­u­ous ap­pre­ci­a­tion could harm the do­mes­tic econ­omy, as ap­pre­ci­a­tion leads to a slump in ex­ports.

“This is es­pe­cially so as the drag on the do­mes­tic econ­omy from the slow­down in the real es­tate sec­tor has al­ready started to emerge,” he noted.

China’s ex­ports surged by 8.3 per­cent year- on- year to $ 1.24 tril­lion in the first seven months in 2017, cus­toms data showed on Au­gust 8. But Zhou said that the in­flu­ence of the yuan’s ap­pre­ci­a­tion on ex­ports will man­i­fest it­self later.

Xi said that strong fluc­tu­a­tions in the yuan, whether ap­pre­ci­a­tion or de­pre­ci­a­tion, are not good for the cur­rency’s in­ter­nal­iza­tion.

“The gov­ern­ment is still pro­mot­ing the yuan’s in­ter­na­tion­al­iza­tion but with a much milder rate [ be­cause of the yuan’s fast ap­pre­ci­a­tion],” he noted.

Xi added that a sta­ble rate is needed for the yuan to be­come a more global cur­rency.

“The space for the yuan’s fur­ther ap­pre­ci­a­tion is lim­ited. It is un­likely to strengthen be­yond 6.5 by the end of this year.” Xi Jun­yang Fi­nance pro­fes­sor at the Shang­hai Univer­sity of Fi­nance and Economics

File photo: IC

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