Business / Economy

Depreciation of yuan not long-term issue

By Wang Yanfei (China Daily) Updated: 2016-03-21 11:10

The yuan's exchange rate will remain stable, despite some fluctuations in the short term, said a senior central bank official during the China Development Forum in Beijing on Saturday.

"There's no basis from the fundamentals supporting a sustained depreciation of the yuan," said Lu Lei, director of the research bureau of the People's Bank of China, the country's central bank.

While the Chinese currency depreciated by 5.8 percent against the US dollar last year, it appreciated against many other currencies and has been largely stable against the dollar this year, according to the China Foreign Exchange Trade System.

After achieving the record high of a $598.1 billion trade surplus last year, China registered a trade surplus of $63.3 billion in January, which rules out the possibility of the currency's sustained depreciation, Lu said.

The senior banker pointed out that China has not adopted a policy of depreciating its currency in order to boost trade competitiveness because "the nation has an adequate trade surplus and because net exports have contributed significantly to its GDP growth".

Echoing his stance, Lawrence Lau, an economist from the Chinese University of Hong Kong, said that although China's foreign exchange reserves have declined from $4 trillion in 2014 to $3.2 trillion, they are still the largest in the world and the amount is sufficient for the country to tackle any impact brought about by the fluctuation of other economies.

China's foreign exchange market has calmed down after months of volatility and the high expectations for big-margin yuan depreciation are simply an "overreaction", said Ding Zhijie, a professor of finance at the University of International Business and Economics in Beijing.

The recent weakening of the US dollar may also help stabilize the yuan's exchange rate, analysts said.

Yu Yongding, an economist at the Chinese Academy of Social Sciences, said the yuan will face less depreciation pressure and that it tends to be more stable at times when the US dollar becomes weaker.

He said the announcement from the Federal Reserve last week that interest rates would not be raised signals a slower pace of interest rate hikes this year.

"A less strong US dollar makes it easier for China's exchange rate management policy," Yu said.

David Dollar, a senior economist at the Brookings Institution in the United States, told Xinhua News Agency that if the dollar continues to weaken, it will facilitate the stabilization of the yuan's exchange rate.

Zhou Xiaochuan, governor of the People's Bank of China, said earlier this month that while he is not able to rule out any future fluctuations of the currency, he expects the yuan's exchange rate to return to normalcy.

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