Recent Depreciation of Asian Currencies
The Chinese yuan is currently in the spotlight due to its recent depreciation against the dollar, alongside other Asian currencies. Speculation has arisen over whether Beijing is engaging in competitive devaluation or planning to do so, raising concerns about potential trade conflicts.
Examination of Yuan Devaluation
The short answer to the speculation is no. The yuan has indeed lost significant value against the dollar in onshore trading, which is closely managed by Beijing within a specific exchange-rate band. It reached a seven-month low of 7.27 yuan to the dollar on Wednesday, marking five consecutive months of decline. Similarly, the offshore yuan, where Beijing exerts less control, depreciated to about 7.30 yuan to the dollar.
Beijing's Approach to Currency Management
Beijing appears to be allowing a modest depreciation of the yuan, as seen by the gradual weakening of the administered midpoint for the onshore yuan. However, this does not seem to be a deliberate strategy to gain a competitive advantage in export markets, contrary to what some American trade advocates suggest. The onshore exchange rate continues to test the lower limits of Beijing's trading range, with the Chinese government resisting deeper devaluation.
Preferences of China's Leadership
President Xi Jinping and the Communist Party leadership likely favor a stronger yuan to support their goal of expanding its use as a global trading currency. In January, Xi emphasized that a "strong currency" is crucial for the development of China's financial markets, indicating a preference for a more robust yuan
No comments:
Post a Comment