Business

Why China’s central bank appreciates the renminbi


The Chinese yuan has fallen to a two-year low against the US dollar in the past few weeks.

Pictures of Sopa | Lightrocket | beautiful pictures

BEIJING – China’s central bank has sent a strong signal that it wants to keep Chinese Yuan from weakening too quickly against the US dollar, economists said.

Second time this yearthe People’s Bank of China announced on Monday that it would reduce the amount of foreign currency banks need to hold.

Such moves theoretically ease weakening pressure on the yuan, which has fallen more than 8% this year to a two-year low compared to the previous year. U.S. dollar.

Chinese authorities often emphasize the renminbi relative to a basket of currencies, whereby the yuan has strengthened by about 1% in the past three months.

However, Beijing’s latest actions show just how important the yuan-dollar exchange rate remains, said Nomura chief China economist Ting Lu and a research team. in a report on Monday.

They give two reasons:

  • “First, in a year of leadership reshuffle once in a decade and with rising US-China tensions, Chinese leaders are particularly interested in the yuan’s bilateral exchange rate to the US dollar as they believe that the yuan/USD is in part a reflection of the relative economic and political strength. opposite to.
  • “Secondly, a major depreciation of the Yuan/USD could dampen sentiment in the country and increase capital flight speed. “

China’s ruling Communist Party is expected in October to choose a new leadership group, while consolidating President Xi Jinping’s grip on power.

David Rubenstein says China has become a more complex place to invest

Tensions between the US and China have escalated over the past few years, leading to tariffs and sanctions on Chinese tech companies.

Meanwhile, China’s economic growth has slowed over the past three years, especially before the shock of the 2020 pandemic. Stricter Covid control measures this year, including the shutdown. two months of Shanghai, has led many economists to cut their GDP forecasts by nearly 3 percent.

That economic slowdown has contributed to a weakening yuan, which could make Chinese exports cheaper for buyers in the US and other countries.

The US dollar has strengthened significantly this year as the US Federal Reserve monetary policy was tightened strongly.

In addition, the greenback – as measured by the US dollar index – has benefited from The euro’s 20-year low and the like Japanese yen fell sharply.

Levels to watch

Read more about China from CNBC Pro

“I think that’s an important threshold,” he said. “I think the reason they’re reluctant to allow that to happen is, if it goes beyond that, then the expectation of currency risk becomes unchecked. You run the risk of seeing large-scale capital outflows.” much more.”

The PBOC on Tuesday set the yuan’s midpoint against the dollar at 6.9096, its weakest since August 25, 2020, according to Wind Information. China’s central bank controls the yuan loosely by setting the midpoint of daily trading based on recent price levels.

PBOC: Don’t bet on a specific point

The PBOC’s latest foreign-currency reserve ratio cut – from 8% to 6% – will take effect on September 15, according to a report. announced Monday on the central bank’s website.

Earlier on Monday, PBOC Vice Governor Liu Guoqiang said that in the short term, the currency will move in two directions and people “shouldn’t bet on a particular point.”

That’s according to a CNBC translation of Liu’s remarks at a press event on economic policy.

In the long run, Liu maintains Beijing’s hopes for the yuan’s international use. In the future, the world’s recognition of the renminbi will continue to increase, he said.

– Abigail Ng of CNBC contributed to this report.



Source link

news7f

News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button