Fears ease over weaker yuan

The Myanmar Times - - International | Business -

A YEAR ago today Chinese au­thor­i­ties stunned global mar­kets by de­valu­ing their yuan cur­rency, rais­ing fears the world’s sec­ond-largest econ­omy was worse off than thought – but in­vestors are now more san­guine about a weaker “red­back”.

The nor­mally sta­ble unit was guided down by nearly 5 per­cent over a week last Au­gust, and has de­clined steadily since then.

It closed at 6.643 to the US dol­lar yes­ter­day, not far from its weak­est level for al­most six years and ap­proach­ing the rate where au­thor­i­ties held it rock steady be­tween 2008 and 2010, in a bid to es­cape the tur­moil of the global fi­nan­cial cri­sis.

But un­like the de­lib­er­ate gov­ern­ment pol­icy of the past, fi­nan­cial mar­kets see eco­nomic fun­da­men­tals as driving the de­cline in the yuan, also known as the ren­minbi (RMB).

A rise in US in­ter­est rates, Bri­tain’s vote to exit the Euro­pean Union and the failed coup in Turkey have all sparked flight to the dol­lar.

Even so traders and China’s busi­ness part­ners still want Bei­jing to pur­sue deeper re­forms and greater trans­parency of its cur­rency regime.

“A year on, in­vestors ap­pear slightly more re­laxed about move­ments in the ren­minbi but we sus­pect that they re­main as wary as ever about trust­ing Chinese pol­i­cy­mak­ers to keep their word,” Cap­i­tal Eco­nom­ics said in a re­search re­port.

Bei­jing keeps a tight grip on its cur­rency as part of Com­mu­nist au­thor­i­ties’ control mech­a­nisms, as well as wor­ries sud­den in­flows or out­flows of cap­i­tal could dam­age the econ­omy.

The gov­ern­ment only al­lows the yuan to rise or fall 2pc on ei­ther side of a daily fix on the na­tional for­eign ex­change mar­ket.

Chinese of­fi­cials have pledged to keep the unit sta­ble, but at the same time grad­u­ally move to­ward mak­ing it freely con­vert­ible as they seek to se­cure a greater role in the world fi­nan­cial sys­tem.

Af­ter years of lob­by­ing, the In­ter­na­tional Mone­tary Fund (IMF) late last year fi­nally agreed to in­clude the yuan in its “special draw­ing rights” re­serve cur­rency basket.

“Con­cerns over the ren­minbi have eased in re­cent months and out­flows have re­turned to a more man­age­able level,” Cap­i­tal Eco­nom­ics said in its re­port.

Bil­lions of dol­lars have flooded out of China in the last year, al­though the tor­rent has slowed dra­mat­i­cally, with Chinese banks sell­ing US$49.0 bil­lion more in for­eign ex­change than they re­ceived in the April-June pe­riod, sharply down on the $124.8 bil­lion of the pre­vi­ous three months.

China’s for­eign ex­change re­serves fell to $3.2 tril­lion in July, ac­cord­ing to the lat­est fig­ures, but re­main by far the world’s largest.

The yuan is ex­pected to go lower this year, given the con­tin­u­ing im­pact of Brexit.

“Global un­cer­tain­ties are grad­u­ally tak­ing a toll,” Citic Bank In­ter­na­tional chief economist Liao Qun told AFP.

“And how much longer yuan is go­ing to fall de­pends on when the euro and pound will bounce back again.”

For years Wash­ing­ton crit­i­cised China over what of­fi­cials have said is a grossly un­der­val­ued cur­rency, but it has re­mained re­laxed over the yuan’s cur­rent weak­ness.

“China has com­mit­ted to mov­ing in an or­derly way to a more mar­ke­to­ri­ented ex­change rate,” a se­nior US Trea­sury of­fi­cial said on the side­lines of a G20 meet­ing in July.

“The test will come when there is up­ward pres­sure on the RMB and whether China will al­low the RMB to ap­pre­ci­ate,” he said. –

Newspapers in English

Newspapers from Myanmar

© PressReader. All rights reserved.