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People's Daily Online>>China Business

No need for panic over RMB fluctuations

(People's Daily)

09:27, December 11, 2011

Edited and translated by People's Daily Online

According to statistics from the China Foreign Exchange Trade System, the RMB's parity rate against the U.S. dollar was at 6.3342 on Dec. 7, a little lower than that of the previous day. The RMB declined the permitted 0.5 percent and hit its lower limit against the dollar in early trading for a six straight day on Dec. 7.

Expectations of RMB appreciation ease

Liu Ligang, head of Greater China economics at Australia and New Zealand Banking Group, said on Dec. 7 that the RMB exchange rate against the dollar has been lower than the central parity rate set by the central bank for six consecutive days, indicating that the recent exchange rate fluctuations have resulted from pure market forces. The sharp drop in the RMB's value in recent days is more of a boon than a bane and can have long-term positive effects on RMB internationalization and the Chinese economy.

Liu believes that the recent drop in the RMB exchange rate against the U.S. dollar was mainly caused by three factors.

The first factor is a modest capital outflow from China in recent days. According to statistics from the central bank, China's foreign exchanges that hedge capital inflows recently decreased, indicating a modest capital outflow.

The second factor is the recent appreciation of the U.S. dollar. Under the influence of market forces, certain investors are selling off their RMB assets to buy dollar assets, leading to a major reduction in the RMB appreciation pressure.

The third factor is the European debt crisis. Due to the crisis, RMB appreciation is losing momentum, and the majority of investors believe that the RMB exchange rate would drop, so the RMB exchange rate has hit the lower limit of the floating range set by the central bank for several consecutive days.

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wende at 2011-12-1271.251.41.*
this should show to US that RMB does reflect market condition and not manipulated by China"s central bank

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