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No need for worry in weaker yuan: experts (2)

(China Daily)

11:09, December 08, 2011

Analysts cited a couple of causes of the currency's weakness: an outflow of speculative capital away from emerging markets and an increasing demand for the US dollar amid Europe's sovereign-debt troubles.

In October, the Chinese central bank's yuan positions for foreign exchange purchases fell by 89.3 billion yuan ($14.2 billion) for the first time in eight years. Analysts saw the decline as indicating an outflow of "hot money".

Despite the yuan's weakening, the central bank has set the middle-trading price of the yuan at a persistently high level. On Wednesday, the yuan managed to make up for its earlier loss; 6.3642 yuan could be traded for each US dollar. That performance, analysts said, resulted from the central bank's attempts to prevent the currency from falling too sharply.

In the past, the rate for exchanging US dollars into onshore yuan had usually been lower than the rate for exchanging them into offshore yuan, indicating an expectation that the yuan would appreciate. That trend, though, has been reversed since September, prompting speculators to try to make quick profits by buying cheaper US dollars in the mainland and selling them overseas.

Zhuang Jian, senior economist at the Asian Development Bank, said that the recent fluctuations in the foreign exchange market have signaled that the yuan's fluctuation will become more pronounced and the currency's appreciation will be slower than expected next year.

"It may signal the end of the one-way rise of the yuan," Zhuang said at an economic forum in Beijing on Wednesday.

Some analysts argue the yuan is weakening because its appreciation is losing momentum and exporters and importers are therefore becoming less interested in holding it.

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