The Chinese renminbi or yuan weakened by 42 points to 6.1384 against the U.S. dollar in its central parity rate on Jan. 26, according to the China Foreign Exchange Trading System. In China's spot foreign exchange market, the yuan fell by 254 points against the U.S. dollar on the same day, to the lowest level since last June.

The large-scale quantitative easing policy unveiled by European Central Bank (ECB) on Jan. 22 is the main cause for the weaker yuan. The Swiss National Bank decided to end its currency peg to the euro. The central banks of India, Canada and Denmark reduced their interest rates. The weak euro led to a stronger US dollar. Since the 2008 global financial crisis, the yuan has been shadowing the US dollar to avoid drastic fluctuations. But as the Chinese economy is in the midst of restructuring, a strong yuan presents more risks than a weak yuan. China is facing huge pressure to depreciate its currency.

In fact, the yuan remained strong in 2014 against the currencies of Europe, Japan and other emerging economies. The rate of the yuan against the euro exceeded 7 recently, for the first time since 2001. China has huge foreign exchange reserves, so it’s unlikely that a weaker yuan will lead to a debt crisis, said Ye Tan, financial commentator.

Though there are many factors influencing the currency rate, the primary factor is sound economic growth. China’s sound economic growth will maintain a stable yuan in the long run, said Zhao Qingming, a researcher from the Beijing financial derivatives research Institute. With the internationalization of the yuan, China has signed currency swap agreements with 12 countries and 28 regions. 169 overseas agencies have invested in China’s interbank market. Thus it is critical to maintain a relatively stable yuan.

This article was edited and translated from 《人民币大跌属短期波动》, source: People's Daily Overseas Edition, Author: Zhou Xiaoyuan