China wants investors and traders to adjust to the idea that it is increasing its currency exchange rate fluctuation. The People’s Bank of China (PBOC) chief economist, Ma Jun, said today that the yuan is likely to move in both directions, appreciation and depreciation, as the Chinese economy recovers.
Last week, the pegged exchange rate saw uncaristeritic volatility. On Tuesday, the PBOC set the yuan midpoint against the US dollar at 1.85% less than the previous closing level, sending the USD/CNY to a high not seen in three years. After calling it a “one-off depreciation,” the central bank repeated the action for three days straight.
Answering questions about the devaluation today, Ma said it is more likely there will be “two way volatility,” and that the PBOC will react only in “exceptional circumstances” to iron out “excessive volatility” in the exchange rate. “In the future, even if the central bank needed to intervene in the market, it may be in either direction,” he added.
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This follows the stated logic of the PBOC, that the yuan depreciation is part of liberalizing the exchange rate and that it is now letting market forces determine the direction the yuan will take.
As for fears that China’s attempt to help its export sector compete internationally with a cheaper yuan will lead to counter moves by other exporter nations in Asia and globally, the PBOC is not concerned. “China has no intention or need to participate in a ‘currency war’,” Ma answered today.
“If we want to evaluate the yuan’s mid-term trend, it’s more important to analyze the fundamentals of the economy, which has shown signs of stabilization and recovery,” Ma explained.