The central bank reiterated yesterday that it is confident in its capability of keeping the yuan’s exchange rate basically stable, after both the onshore and offshore yuan fell beyond 7 against the U.S. dollar.
The People’s Bank of China (PBOC) attributed the weakening of the currency beyond 7 yuan per U.S. dollar yesterday to factors including unilateral and protectionist measures, as well as the expectation of additional tariffs on Chinese goods, according to an online statement. The Chinese yuan dropped sharply yesterday to its weakest level against the U.S. dollar in more than a decade.
“The PBOC has the experience, confidence and capability necessary to keep the yuan’s exchange rate basically stable at a reasonable and balanced level,” the statement said.
The central bank has accumulated considerable experience and policy tools in coping with exchange rate fluctuations, and will continue to innovate and improve its toolkit, crack down on short-term speculation and stabilize market expectations in the future, according to the statement.
The yuan’s exchange rate is determined by long-term economic fundamentals, although it is affected by market supply and demand as well as the dollar’s movement in the short term.
From the macro perspective, the yuan’s exchange rate is buoyed by the country’s sound fundamentals, strong economic resilience, stable fiscal position, controllable financial risks, balanced cross-border capital movement and sufficient foreign exchange reserves.
The central bank said China is likely to become a hot spot for global capital, as the country is the only major economy that keeps normal monetary policy, while many developed economies have loosened their monetary policies.
The U.S. threat of imposing an additional 10-percent tariff on US$300 billion worth of Chinese goods starting Sept. 1 disrupted market expectations, causing global stock and foreign exchange markets to slump, said Zhang Yansheng, a researcher with the China Center for International Economic Exchanges.
“China is the victim of U.S. trade bullying,” he added.
Wang Youxin, a researcher with the international financial research institute under the Bank of China, regarded the yuan devaluation as a normal response to external changes.
Despite recent weakening, the yuan has strengthened 20 percent against the dollar over the past two decades, the strongest among major currencies in the world.
The yuan remained basically stable and strong against a basket of currencies, with the China Foreign Exchange Trade System yuan exchange rate composite index up 0.3 percent since the beginning of the year.
Although the yuan’s central parity rate had weakened about 0.53 percent against the dollar by Friday, its depreciation was much smaller than those of the Korean won, the Argentine peso and the Turkish lira.