http://www.bjreview.com AUGUST 15, 2019 BEIJING REVIEW 33
Copyedited by Madhusudan Chaubey
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well as the dollar’s strength in the short term.
A new situation in the international
economy, trade frictions and changing market
expectations have led to the depreciation of
many currencies against the dollar recently,
affecting the yuan’s exchange rate as well, PBC
Governor Yi Gang said on August 5.
The U.S. Federal Reserve’s interest rate cut
announced on July 31 has also triggered fluc-
tuations in the international financial market.
As Wen Bin, chief researcher at China Minsheng
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portal, changes in the yuan exchange rate have
been greatly influenced by the market senti-
ment toward the U.S. interest rate cut.
“Given mounting external uncertainties, the
yuan’s fall below the 7 mark is within expecta-
tions, and the currency’s depreciation does
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tem,” Lian Ping, chief economist with Bank of
Communications, told Beijing Review.
According to Yan Se, an associate professor
with the Guanghua School of Management at
Peking University, the weakening of the yuan
reflects the effectiveness of China’s efforts in
the market-determined exchange rate system.
Since 2005, to open up the domestic
market, the country has adopted a managed
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value to a basket of currencies, allowing its value
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a daily reference rate.
On August 6, the U.S. Treasury Department
labeled China a “currency manipulator” for the
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tion beyond tariffs.
Refuting the U.S. allegation that the weak-
ening of the yuan falls in the scope of currency
manipulation, the central bank highlighted that
China has never resorted to competitive devalu-
ation and will not use the currency as a tool to
deal with trade disputes.
The yuan has remained stable from a
broader perspective. According to the central
bank, the yuan’s nominal exchange rate ap-
preciated 38 percent and its real exchange rate
rose 47 percent from the beginning of 2005 to
June.
The currency has strengthened 20 percent
against the dollar over the past two decades de-
spite recent weakening, which makes the yuan
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world.
Since the start of the year, the yuan has
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cies. The China Foreign Exchange Trade System
RMB Index, which compares the Chinese cur-
rency to the value of 24 currencies such as the
dollar and the euro, has risen by 0.3 percent.
The yuan’s exchange rate has been sup-
ported by China’s sound fundamentals, strong
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reserves, the PBC said.
The International Monetary Fund’s annual
report released in July also indicates that the
yuan exchange rate was broadly in line with
fundamentals.
Data from the State Administration of
Foreign Exchange showed that China’s foreign
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beginning of the year to $3.1 trillion at the end
of July.
According to Lian, the yuan exchange rate
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tion due to China’s stable economic growth and
monetary policies, which have an effect on the
exchange rate.Stable momentum
Although the yuan’s depreciation can be a
boon for export-oriented enterprises, benefits
may also be accompanied by risks. According
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yuan exchange rate mean both appreciation
and depreciation are likely. Therefore, domestic
enterprises are still supposed to focus on their
original businesses instead of the trading of for-
eign exchange derivatives.
It is clear that the currency’s weakening
beyond the 7 yuan per dollar mark will not
deal a blow to the life of the people in China as
the yuan has seen more appreciation against
the dollar and a basket of currencies than de-
preciation in the past decades, with people’s
purchasing power for foreign services and
goods rising.
Downward pressure on the yuan may bringyuan-denominated assets under pressure, while
it also indicates the market’s expectations for
policy easing, Hong Hao, Managing Director and
head of research at BOCOM International, said.
As Shao Yu, chief economist at Shanghai-
based Orient Securities, highlighted, the current
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the yuan exchange rate, which can promote
exports and reduce asset bubbles.
The country also needs to adopt flexible
measures to ease pressure on domestic export-
oriented enterprises and stabilize employment
amid rising external uncertainties, Yan said.
According to Wen, it is not necessary to pay
too much attention to whether the yuan’s ex-
change rate is higher or lower than 7 yuan per
dollar because the yuan exchange rate index
remains stable. Meanwhile, the dollar index may
continue to fall.
The drop of the dollar index can help make
the yuan’s exchange rate to the dollar stable,
which will remain close to 7 in the short term,
Zhang analyzed.
“From the second half of this year to next
year, domestic demand driven by investment
and consumption will remain stable under
the counter-cyclical policy, which can help
ensure the stability of the yuan’s exchange
rate,” Lian said.
As the central bank predicted, China is
likely to become a magnet for global capi-
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has maintained a stable monetary policy as
many developed economies have loosened
monetary policies. QA photo of dollar notes taken in Washington, D.C. on July 31 as the U.S. Federal Reserve lowered interest rates for the
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