Business / Markets

Yuan depreciation not long-term: expert

(Xinhua) Updated: 2014-05-08 11:23

BEIJING - A Chinese economist has predicted that the depreciation of the yuan would not last long, the China Securities Journal reported Wednesday.

During an interview by the Journal, Yu Yongding, of the Chinese Academy of Social Sciences, said yuan depreciation would be temporary because of the huge current and capital account surplus of around $125 billion.

Foreign exchange reserves rose 769 billion yuan ($125 billion) in the first quarter of 2014, while the exchange rate of yuan to US dollar decreased by about 3 percent.

However, Yu believes that yuan depreciation has helped China reduce losses from arbitrage and speculation that ran wild during 2013 after increased yuan internationalization.

The depreciation increased the risks and costs of arbitrage and overseas speculation, eased hot money inflow and preserved financial stability, Yu explained.

Slowing economic growth since last year has helped capital outflow, which also contribute to yuan depreciation, said Yu, who believes the central bank should not abandon intervention, even if the exchange rate market is fully liberalized.

"The most crucial issue is to change away from the former growth method, rather than just avoiding economic decline," Yu said.

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