Tag Archives: Chinese currency

RMB rate to depend more on basket of currencies: PBOC economist

   BEIJING, Jan. 11 (Xinhua) — The Chinese yuan’s exchange rate will be determined with more reference to a basket of currencies, as it faces persistent depreciation pressure against the U.S. dollar, according to a senior economist with the central bank on Monday.

“Giving more consideration to a basket of currencies means the RMB’s value will be kept basically stable against the whole basket,” said Ma Jun, chief economist of the People’s Bank of China’s research bureau.

“That will be the keynote of the yuan’s exchange rate formation mechanism in the foreseeable future,” he said.

China will guide the market to form a yuan/dollar rate, so as to help stabilize the yuan’s value against the currency basket, said Ma.

“The central bank will ask market makers to consider the yuan’s stability against the currency basket when reporting their central parity quotes to the China Foreign Exchange Trade System,” he said.

The yuan’s value will be increasingly stable against the currency basket, while the yuan/dollar rate will fluctuate wider in a two-way manner, rather than in a single direction, Ma predicted.

When investors understand the basket-based exchange rate formation mechanism, short selling of the yuan will decline, according to him.

“The yuan’s exchange rate is currently not pegged to the U.S. dollar nor is it allowed to float in an unchecked way,” he said.

“We will introduce a mechanism to properly limit daily yuan/dollar rate fluctuation,” said Ma.

Giving stronger consideration to a basket of currencies will not hurt the Chinese government’s autonomy in making monetary policies, he said, adding that the yuan’s rate will not be strictly pegged to the basket.

Ma’s remarks came after the Chinese yuan, under persistent depreciation pressure, dipped to a five-year low against the greenback last week.  Enditem

 

 

China Voice: Yuan’s substantial depreciation unlikely

BEIJING, Jan. 6 (Greenpost) — The continued depreciation of the yuan against the U.S. dollar since August should not be grounds for doom and gloom, as a multitude of factors underpin the Chinese currency in the medium and long term.This March 17, 2010 illustration in Beijing shows China's 100 Yuan, or Renminbi, notes, the largest denomination in Chinese currency. The World Bank has urged China to let its currency rise to contain inflation and stop the economy overheating, predicting that growth will gallop ahead at 9.5 percent this year. China is facing growing international pressure, particularly from the US, to let the yuan appreciate but Chinese Premier Wen Jiabao's insisted over the weekend that Beijing would resist any foreign pressure for a stronger yuan, currently pegged within a narrow range at about 6.8 to the USD. AFP PHOTO/Frederic J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP/Getty Images)   The yuan has been heading south since the People’s Bank of China (PBOC), the central bank, revamped the foreign exchange mechanism in August to make the rate more market-based.

The onshore yuan (CNY), traded in the Chinese mainland, declined 4.05 percent against the greenback in 2015. During the first two trading days of 2016, the offshore yuan (CNH) traded in Hong Kong, has consistently gone down, losing as much as 1.3 percent at one point and putting pressure on the onshore yuan to sink lower.
Short-term volatility of the yuan is understandable as “hot money” makes an exit out of China, whose economy is heading for its slowest pace in a quarter century as industrial overcapacity and housing overhang still haunt. Meanwhile, the United States is seeing recovery and raised interest rates in December, with more rises expected in 2016.
However, there is no risk for the yuan to see substantial depreciation in the long term.
China has a mammoth foreign exchange reserve (3.4 trillion U.S. dollars), sound economic fundamentals, commendable growth in labor productivity and determination to carry out necessary reforms to unlock vitality.
The inclusion of the yuan by the International Monetary Fund in its elite basket of currencies, effective this October, will give the yuan a leg up toward internationalization.
Another favorable factor is the continued weakness of global commodity prices. Reduced costs help China, the world’s biggest commodity consumer, boost its current account surplus, thus offsetting capital outflows and the depletion of its foreign exchange reserve.
A drop of 10 dollars in average oil prices, for example, would reduce the costs by 25 billion dollars a year, according to Goldman Sachs’s estimate. Low crude prices may prop up the surplus to about 360 billion dollars this year, it added.
The authorities wouldn’t want or tolerate substantial declines in the yuan either. A typical goal is to keep the currency “basically stable.”
When the PBOC introduced the new foreign exchange rules in August, there were doubts that China was purposely devaluing the yuan to boost exports. That assumption was unfounded. The authorities have no intention to manipulate any drastic depreciation as the contribution of foreign trade to the country’s economic growth has declined to the level seen at the beginning of the century.
China is capable of keeping the yuan’s exchange rate at a “reasonable” level and sees no basis for continued depreciation, PBOC Vice Governor Yi Gang said at a recent press briefing.
“In the event of drastic fluctuation or abnormality in international balance of payments and cross-border capital flow, the central bank will not hesitate to intervene,” Yi added.
To reduce the market’s fixation on the yuan-dollar rate and better reflect the market, China Foreign Exchange Trade System (CFETS) 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, euro, and Japanese yen.
An update released on Monday showed that on the last day of 2015, the CFETS yuan index stood at 100.94, meaning the yuan appreciated 0.94 percent compared to the level at the end of 2014.  Enditem

China Focus: Chinese exporters see limited impact from weakening yuan

SHANGHAI, Aug. 12 (Greenpost) — China’s renminbi extended its sharp drop against the U.S. dollar on Wednesday from the previous day, but exporters say a weakened yuan has a limited effect on their business.

The official guidance rate of the Chinese currency shed 1.6 percent, or 1,008 basis points, on Wednesday, following Tuesday’s sharp fall of 1.9 percent.

Such a sharp decline against the greenback is unusual for the Chinese currency, which has been moving within a narrow range this year despite a firming dollar on expectations of the U.S. Federal Reserve’s rate hikes.

Analysts have largely attributed the correction in the exchange rate to China’s response to the IMF’s call for the currency to better reflect market forces, but the yuan’s weakening came on the heels of weak July export data. Yet exporters have shown a mixed response to the yuan’s drop in value.

“The depreciation does benefit Chinese exports, but to a limited effect.” said Liang Hong, chief economist at China International Capital Corporation.

Liang said that the depreciation that came as a result of tweaking the formation of the renminbi’s central parity rate will only marginally relieve the pressure on growth brought by slowing exports.

China’s July exports slid 8.3 percent from a year ago, far below the street consensus of -1.5 percent.

“The depreciation will boost confidence among exporters after the sluggish July export data,” said Lu Dong, deputy manager at the Shanghai branch of China Export & Credit Insurance Corp. “But that is not the purpose for the yuan’s slide and it won’t be the start of massive depreciation against the dollar.”

According to Julian Evans-Pritchard, China economist at Capital Economics, the change in how the reference rate is set is primarily intended as a move toward greater liberalization of the foreign exchange market ahead of the IMF’s decision about whether or not to include the renminbi in the SDR basket.

Though the yuan has depreciated significantly against the dollar, the drop in value is not as pronounced compared to other currencies.

Still, the yuan’s largest single day drop in almost two decades has some exporters cheering.

“Nothing makes me happier than seeing the yuan weaken against the dollar,” said Jiang Zhencheng, general manager of Shanghai Tianmao Stationary Co. Ltd.

“A strong yuan has blunted our competitiveness in the international market. The correction is such a relief for us as the United States is our key market,” Jiang said.

“The depreciation will benefit textiles and light industry as the two sectors in China are very export-oriented,” said CITIC analyst Ju Xinghai.

However, the actual positive impact of the depreciation is not as much as in theory because change in the exchange rate will lead to price adjustment, Ju added.

“The devaluation of the renminbi does work to our advantage. However, as a weaker yuan pushes up trade volume, our export price will also have to readjust,” said Li Qi, director of production at Licheng Clothing Group.

“Even if we don’t, our overseas clients will demand it anyway,” Li said. Enditem