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No need for worry in weaker yuan: experts (3)

(China Daily)

11:09, December 08, 2011

"Trading companies' behavior is being driven by yuan appreciation expectations," Stephen Green, Robert Minikin and Wei Li, economists at Standard Chartered, said in a report.

A slowdown in world economic growth and a weakening of inflationary pressures have eroded the likelihood that the yuan will appreciate significantly in the next few quarters, they said.

Ding Zhijie, dean of the Beijing-based University of International Business and Economics' school of banking and finance, said the short-term instability in the yuan's exchange rate may force the central bank to use open-market operations to prevent further declines in the currency's value.

"The yuan's weakening will also help pave the way for the market to take a bigger role in determining the value of the currency and providing for a greater flexibility in the system governing the yuan's exchange rate," Ding added.

Chong Quan, deputy trade representative at the Ministry of Commerce, said the yuan's weakness shows the currency is not being manipulated by the government and that its exchange rate instead rises and falls in response to market conditions.

Some economists warned that the decline in value may both hinder China's work to make the yuan into an international currency and bring about political tensions between China and the US.

The Xinhua News Agency quoted Zhang Monan, a researcher with the State Information Center, as saying that the yuan's weakening presents few causes for concern. A moderate fluctuation in the currency's value, he explained, shows that the market believes the Chinese economy is becoming more balanced.

Analysts said that a weaker yuan will help burst bubbles in domestic asset prices and alleviate the pressure the central bank is under to deal with the country's $3.2 trillion worth of foreign exchange reserves.

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