China’s RMB Yuan Exchange Rate Returning To Normal

By Live Trading News  Posted by: : Paul EbelingPosted on: September 12, 2015

The RMB Yuan’s exchange rate will return to a reasonable and normal track, given there are no grounds for continued depreciation in the long run.

Ding Zhijie, a professor at the University of International Business and Economics, has echoed Chinese Premier Li Keqiang in saying China’s recent adjustment to the RMB Yuan’s exchange rate mechanism was aimed at giving market forces more power, and the depreciation is temporary.

Ding’s remarks were carried in an article Friday by the China Business News.

China’s ultimate goal in overhauling the mechanism was to give market supply and demand a greater role in the rate formation system, Ding said, adding the modest weakening of the yuan was a result of the release of devaluation pressure that was mostly due to external factors, especially the rallying U.S. dollar.

Although the RMB Yuan is depreciating in the short term, prospects for a robust Chinese currency are strong in the longer term, as China’s economic growth continues to gain momentum, Ding said.

On 11 August, the central bank decided to let the market play a greater role in forming the RMB Yuan’s central parity rate Vs the USD. The RMB Yuan weakened about 3% in the following 2 days before stabilizing on increased assurance from the central bank.

The currency’s depreciation has seen criticism that China is causing a currency war and attempting to boost exports through depreciation of the RMB Yuan.

China is unwilling to promote a currency war, as it would do no good for the country, Premier Li said at the Summer Davos Forum in Dalian in northeast China.

Using RMB Yuan depreciation to boost exports conflicts with the Chinese economy’s ongoing structural reform, Li said, adding China has ample foreign exchange reserves and sound economic growth, leaving no basis for future depreciation of the currency.

China remains 1 of the strongest drivers of global growth and is not the source of financial risks, he said.

Effective 11 August the daily central parity quotes reported to the China Foreign Exchange Trade System before the market opens are based on the prior day’s closing rate of the inter-bank foreign exchange rate market, supply and demand, and price movements of major currencies.

By Xiang Bo

Paul Ebeling, Editor

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