What Next For The Yuan
The Chinese currency has been relatively calm since a sudden and rapid depreciation sent global forex markets into a panic in early January. But this period of stability is coming to an end.
Markets should get ready for more volatility as the barriers to sharper depreciation have mostly gone, allowing the Chinese leadership to take more decisive action to allow the yuan to regain competitiveness.
The offshore yuan, known as the CNH, sank to an almost record low today, October 17, while the onshore yuan, or CNY, fell to a six-year low, touching 6.7375 at one point. The People’s Bank of China set the yuan’s daily fixing above the key psychological level of 6.70 for the first time in six years on October 10, and gradually weakened it to a fixing of 6.7379 on October 17.
Over the last few months policy makers have given priority to boosting confidence in China’s strength and stability amid a series of high-profile geopolitical events. These included President Xi Jinping’s hosting of the G-20 summit in early September and the yuan’s entry, on October 1, into the basket of currencies used by the International Monetary Fund to value its Special Drawing Rights international reserve asset.
But although the PBOC has guided the yuan’s fixing against the dollar lower by almost 1 percent this month, Beijing is waiting for two more key political events - domestic and international - before it can really start freeing the economy from the burden of an overvalued currency and help the country’s painful transition to consumer-led growth.
China is gearing up to take more decisive action on the yuan even if it leads to more global volatility.
To read Enodo Economics analysis on why the yuan remains overvalued and why it is in both China and the world’s interest to allow the currency to depreciate further, click here.
Commodities Researcher, Writer and Investment Manager
8 年Congratulations on the birth and infancy of Enodo ! I am sure it will be a success...looking forward to following your views as always Best wishes Colin