Fluctuations of yuan exchange rate 'normal'

The renminbi's exchange rate will maintain equilibrium thanks to China's stable economic fundamentals, central bank officials said on Monday.

The onshore exchange rate of the renminbi fell beyond 7 per US dollar when market trading opened on Monday - the first time since May 2008.

The People's Bank of China, the central bank, released a statement on its website, saying the weakening of the currency is due to such factors as unilateralist and protectionist measures of the United States as well as Washington's threat to impose additional tariffs on Chinese goods.

The onshore rate, which trades 2 percent on either side of a daily central parity level, fell past 7 yuan per dollar on Monday for the first time since the global financial crisis. It weakened by 1.3 percent to 7.0297 per dollar at the market's opening, and by Monday's close, it was at 7.0352, a drop of 1.33 percent.

Despite that, the yuan has remained basically stable and strong against a basket of currencies, the statement said.

Since the start of the year, the RMB has strengthened against a basket of major currencies. The China Foreign Exchange Trade System RMB Index has appreciated by 0.3 percent, according to the PBOC.This index compares the Chinese currency to the value of 24 currencies, including the US dollar, euro and Japanese yen.

In the past 20 years, the renminbi has appreciated by about 20 percent against the dollar, becoming one of the world's strongest major currencies, according to the Bank for International Settlements.

Exchange rate fluctuations are "normal", according to the PBOC statement. Over longer periods, the renminbi's exchange rate will depend mainly on economic fundamentals, officials said. In the short run, market demand and supply and the US dollar's value will have great impacts on the currency.

"We should not pay much attention to whether the renminbi's exchange rate is higher or lower than 7 yuan per dollar," said Wen Bin, chief researcher at China Minsheng Bank. He also said fluctuations in the renminbi exchange rate have been greatly influenced by market sentiment toward the US Federal Reserve's quarter-percentage-point interest rate cut.

"After the US Fed's rate cut last week, the international financial market experienced significant fluctuations," he said.

Along with the market-oriented reform of renminbi exchange rate regime, the flexibility of the exchange rate will be improved, resulting in a "two-way" float - both appreciation and depreciation are likely, around a reasonably stable equilibrium level, Wen said.

"Today's move also underscores that global markets and policymakers will have to get used to a more market-driven RMB and the greater variability that comes along with that," said Louis Kuijs, head of Asia economics at Oxford Economics. "It is about time that China's currency becomes more market-determined and flexible."

Zhang Ming, an economist at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, said the renminbi will not see a dramatic drop, since the country's economic foundations are stable and sound.

After the US Federal Reserve announced the cut on Wednesday to counter impacts from trade tension, low inflation and global weakness, the US dollar index rose but then dropped this week.

The rate cut and a weaker US dollar will curb further weakening of the renminbi, which will remain stable, said Zhang.

"The PBOC has experience, confidence and the capacity to maintain the renminbi exchange rate at a reasonably stable equilibrium," the PBOC statement said.

The central bank will continue to innovate and enrich its toolkit, taking necessary, targeted measures to crack down on illegal short-term speculative activities, it said.

chenjia@chinadaily.com.cn

(China Daily Global 08/06/2019 page1)