CEO Morning Brief

China Restates Need for Steady Yuan Amid Fragile Confidence

Publish date: Fri, 19 Apr 2024, 09:48 AM
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TheEdge CEO Morning Brief

(April 18): China reiterated the need to prevent one-sided moves in the yuan, as a resurgent dollar and poor risk sentiment pressure currencies across Asia.

The nation will “resolutely” put the yuan back on track when traders place lopsided bets and it’ll also attempt to avoid excessive volatility, the People’s Bank of China (PBOC) said in a report on its social media account on Thursday. The Chinese currency slid to the weakest since November earlier this week on bets the US won’t rush into cutting interest rates and the world’s second largest economy will struggle to recover.

The yuan rose 0.1% to 7.2349 per dollar as of 10.23am in Shanghai.

While the commentary was a reiteration of Beijing’s usual verbal warning against speculators, it underscores authorities’ concern about wild swings in the yuan that may endanger financial stability. It also came as neighbouring Japan and South Korea expressed “serious concerns” over the recent weakening of their currencies and warned they make take steps to counter any drastic volatility.

China will make sure that its exchange rate is mostly determined by supply and demand, according to the PBOC report, which was originally published by Communist Party-backed People’s Daily and posted on a WeChat account run by the central bank. The yuan will be kept broadly stable, it said.

The PBOC released the report after studying a book by President Xi Jinping on China’s financial work, the PBOC said. The article also said the nation will maintain a prudent monetary policy and ensure the use of financial resources is efficient.

In March, China published a compilation of excerpts of the top leader’s speeches on finance, going back to when Xi took power in November 2012. State media touted his thoughts on the sector as an “important innovation” of Marxist political economy that will guide “financial development with Chinese characteristics”. One snippet from the book already caught traders’ attention, as investors scrambled to interpret his words.

On Thursday, the PBOC set its daily reference rate for the yuan little changed at 7.1020 per dollar. Earlier this week, it unexpectedly weakened the fixing — which limits the currency’s moves by 2% on either side — to allow moderate depreciation.

Still, doubts remained among some analysts over whether the PBOC could continue such a strong defence of the yuan. The central bank’s current position is not “sustainable”, according to Logan Wright, director of China market research at Rhodium Group, who said he believed the currency would weaken.

“I think the PBOC is doing this because they’d rather avoid immediate depreciation because that would catalyze additional capital outflows,” he said. “But eventually these long periods of stability in the exchange rate do not last.”

Source: TheEdge - 19 Apr 2024

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