G20 members agree to avoid currency wars
China's yuan remains relatively stable as G20 members agreed to refrain from competitive currency devaluations, a deputy governor of the People's Bank of China (PBOC) said on Thursday. [Special coverage]
PBOC deputy governor Yi Gang told a news conference in Hangzhou, Zhejiang Province the yuan was less volatile than major reserve currencies after Britain's decision to quit the European Union.
"Many emerging markets see their currencies fluctuate annually by more than 10 percent. Compared with them, China has a relatively stable currency," Xi Junyang, a professor at the Department of Finance of Shanghai University of Finance and Economics, told the Global Times on Thursday.
The yuan is already down almost 3 percent this year and trading near six-year lows, although it has stabilized in recent months.
On Thursday, the central parity rate of the yuan strengthened to 6.6784 against the U.S. dollar, up 0.19 percent from 6.6908 yuan, according to PBOC data.
Yi said the central bank insists on an open and flexible financial system and continues to improve the yuan's mid-point mechanism to make it "more transparent" to stabilize market expectations.
On August 11, 2015 the PBOC, China's central bank, set the yuan's daily mid-point versus the dollar based on the previous day's closing price, taking into account changes in major currencies.
"The government's reforms to the yuan's central parity rate system bring the currency's exchange rate closer to a more market-oriented system by allowing the yuan to depreciate to a certain extent. It shows that government is intervening less in the exchange rate mechanism. In this sense, the reforms have outstanding, positive effects," Xi noted.
International standards
China's monetary reform is in line with international market demands, experts said.
In 2016, G20 members agreed that financial reforms should seek to establish an open and resilient financial system by taking advantage of effective but prudent macro policies and facilitating financial market infrastructures and financial inclusion, the Xinhua News Agency reported on Thursday.
Liu Xuezhi, a senior analyst at the Bank of Communications, added that the central bank is rebuilding the yuan's exchange rate mechanism to bring it closer to its market value and facilitate the currency's internationalization.
In November 2015, the International Monetary Fund agreed to include the yuan in its Special Drawing Rights (SDR) as a fifth currency, with the yuan's share being set at 10.92 percent.
The decision will take effect in October, marking a milestone in integrating China's economy into the global financial system and a win-win situation for China and the world, according to the 2016 RMB Internationalization Report of Renmin University of China's International Monetary Institute.
But the Chinese government has not deliberately weakened the yuan, considering the fact that the yuan's exchange range has been limited and lower than market expectations, Xi said. He added the Chinese government has always stressed the importance of stabilizing the currency.
China's exports slid 2.1 percent to 6.4 trillion yuan in the first six months of 2016, and its imports dropped 4.7 percent to 4.73 trillion yuan, data from the General Administration of Customs showed in July.
Stable outlook
In the long-term, the yuan's rate will be flexible and pressure to dramatically depreciate will be weak. But if the U.S. Federal Reserve hikes interest rates or the U.S. dollar continues to appreciate, the yuan will once again feel depreciation pressure, Huang Zhilong, director of the Macroeconomic Center at the Beijing-based Suning lnstitute of Finance, told the Global Times on Thursday.
"Since the Chinese government considers currency stabilization important, and as China's economy shows signs of improving, I would say that the chance for the yuan to depreciate rapidly in 2016 is very small," said Xi.
Zhang predicts the yuan's exchange rate will fluctuate within 6.8-to-1 range against the dollar and will remain relatively stable, as depreciation pressure on yuan which had accumulated in the previous periods has already dissolved after two rounds of depreciation.
"I believe that the Chinese government would intervene less in the exchange rate. The government would only intervene if the yuan abnormally fluctuates," Xi said.
