Time right to loosen controls on CNY-USD exchange rate: China state-run paper – 1 Aug 2017

  • The China Securities Journal, run by the state-run Xinhua news agency, said in a front-page editorial that the time is right for the People’s Bank of China to allow greater volatility in the yuan’s exchange rate with the dollar, signalling that Beijing’s concerns over the sharp depreciation in the yuan are easing as the dollar’s value slides.
  • Beijing has been on the defensive over the value of the yuan for nearly two years after its abrupt 2% devaluation of the currency in Aug 15 roiled global markets.
  • The Chinese government has taken a slew of measures, from draconian curbs on capital outflow to the adoption of opaque and complex changes to the yuan exchange regime, to keep the currency from weakening sharply.
  • “The one-sided bet on yuan deprecation has been broken,” the editorial said. “Cross-border capital flow has been stabilised and improved in 1H17, while supply and demand in the forex market has basically balanced – it is in the most balanced period for the past three years.”
  • The yuan has already advanced to a nine-month high against the US dollar. The US dollar index, which compares its value with a basket of currencies, now hovers at a near one-year low as the value of the greenback weakens. China’s foreign exchange reserves have also been stabilised at a level of USD3tr over the past months.
  • China’s central bank efforts to defeat those who bet on a big slump in the yuan, while successful at face value, have also invited suspicions over whether Beijing is peddling back on its market-oriented liberalisation of the exchange regime to a “managed floating system”. Zhang Xiaohui, an assistant governor at the central bank, wrote in an article published in the latest edition of China Finance, a central bank journal, that the authorities would “unswervingly” push ahead with yuan exchange rate liberalisation to give the market a decisive role in deciding the yuan’s value.
  • The China Securities Journal editorial said Beijing’s measures to bolster the value of the yuan were merely “temporary tools in a transitional period” and the direction of market-oriented reforms have not changed.

External Link : http://www.scmp.com/news/china/economy/article/2104948/time-right-loosen-controls-yuan-dollar-exchange-rate-says-china