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No disorderly yuan depreciation

Updated: 2016-07-27 07:13
(China Daily)

No disorderly yuan depreciation

A Chinese clerk counts RMB (renminbi) yuan banknotes at a bank in Huaibei city, East China's Anhui province, Dec 1, 2015. [Photo/IC]

In a reversal of the trend in recent months, the central parity rate of the yuan strengthened 203 basis points to 6.6669 against the US dollar on Friday, after rising for three consecutive days.

However, some forecast the yuan is likely to decline to 6.8 yuan against the dollar or lower in the future.

It is not easy to predict the yuan's future exchange rate, given that multiple factors influence it. But in the context of a strong US dollar, the yuan does face external pressure to devalue.

Brexit and the recent failed military coup in Turkey have further increased investors' enthusiasm to find a safe haven, which may cause more investors to shift to the US dollar. It is widely believed that the greenback will continuously gain steam in the time ahead and exert more pressure on the yuan.

The yuan's drastic declines after May were within market expectations, because they came after the Chinese monetary authorities officially confirmed that the yuan's central parity rate was to be based on a basket of currencies and its closing price.

This "managed floating" policy adopted by the monetary authorities leaves no room for drastic devaluations of the yuan.

In the context of the considerable fluctuations in the international financial market since the latter half of June, China's central bank chose to inject some liquidity into the market in a move to stabilize market expectations, enhancing people's belief that the monetary authorities will intervene again if necessary.

At the same time, the monetary authorities' efforts to form a more reasonable exchange rate formation regime and raise its policy and pricing transparency will also reduce any possible disorderly depreciation of the yuan.

--Economic Information Daily

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