"A market-based exchange rate will help resolve some technical issues for the RMB to enter SDR, albeit the IMF's November SDR review will be determined by more sophisticated criteria," Zhao said, adding that a market-based exchange rate of the RMB will increase China's bargaining power when President Xi Jinping visits the United States in September.
Rajrishi Singhal,senior Geo-Economics research fellow with Indian think tank Gateway House based in Mumbai, told Xinhua that the PBOC is signalling with this two-stage devaluation that it is moving the RMB closer to an exchange rate determined by the market.
"China has been steadily working on internationalizing the yuan through various measures such as establishing RMB clearing infrastructure in major global trading centers," Singhal said, adding that this move would help the currency to be used by the International Monetary Fund to calculate the value of SDRs and counted among the major currencies in the world.
RMB UNLIKELY TO SLUMP
The central parity rate of the yuan weakened by 704 basis points, or 1.1 percent, to 6.401 against the U.S. dollar on Thursday, narrowing from Wednesday's 1.6 percent and almost 1.9 percent on Tuesday.
The sharp falls came after the PBOC adjusted the exchange rate formation mechanism on Tuesday, a move it said was designed to better reflect market development in the exchange rate of the yuan against the U.S. dollar.
The market reacted with surprise and concern at the currency's prospects, fearing the currency would further slip.
But Zhang Xiaohui, assistant governor of the PBOC, said there is no grounds for persistent and substantial depreciation as the value of the yuan has gradually returned to market levels as the discrepancy between the central parity rate and the actual trading rate was corrected after declines in the past few days.
"The central bank described this as a 'one-time correction' to bring the reference rate closer in line with prevailing market rates, rather than a major policy shift," said Julian Jessop, chief global economist of Capital Economics Consulting Group, adding that it is imprudent to characterize it as a "devaluation."
In the eyes of Jessop, talks of the move to "trigger a fresh wave of global 'currency wars' is clearly overdone," as "most currencies have still fallen substantially further against the U.S. dollar."
"The idea that some additional, relatively limited moves in the renminbi-dollar rate will have a material impact on the economies of Europe or the U.S., let alone the rate decisions of the Fed, is frankly ludicrous," Jessop said.
