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Yuan gets more international recognition despite volatility

(CNTV)    14:48, October 01, 2017


China’s yuan (renminbi) is heading for its biggest quarterly advance since 2011 even though it still faces a noticeable sharp reversal this week.

Since hitting its highest level in nearly 21 months earlier this month, the yuan has weakened by 1.9 per cent after the People’s Bank of China’s (PBOC’s) move to scrap two trading restrictions that had been intended to discourage bearish bets against the currency.

Market participants viewed that move as a signal that the PBOC was less nervous about yuan weakness following a virtually uninterrupted rally this year.

According to the PBOC’s second quarter Monetary Policy Report, rapid currency movements and higher volatility are in line with market-driven forex reforms, and the central bank’s long-standing argument for maintaining the currency’s relative stability around an equilibrium level.

China's currency had been included in the Special Drawing Right (SDR) basket of the IMF in October 1, 2016. Following the yuan's entry in the basket, the exchange rate between the Chinese yuan and the US dollar experienced strong fluctuations.

As the first anniversary of the yuan officially joining the elite reserve currency basket, the inclusion makes the yuan one of the five reserve currencies fully endorsed by the 189-member organization, together with US dollar, the euro, the Japanese yen and the British pound. 

The PBOC called the yuan's SDR inclusion "a milestone in the internationalization of the yuan" and "a recognition of China's progress in economic development as well as financial reforms and opening up."

In the past year, despite increasing fluctuations, the yuan has gained significant recognition. The market has realized that the two-way volatility in yuan trading is significant, and the interest rate will be more flexible in the future.

As the biggest economic aggregate in China, Guangdong Province had 55,614 companies and 3,280 bank outlets handling settlements in yuan by the end of August, the PBOC Guangzhou branch report said, conducting yuan settlement with 213 countries and regions. 

The financial messaging service provider SWIFT reported that by the end of June, more than 1,900 financial institutions were using the yuan for settlement, and about 56 foreign central banks or monetary authorities hold capital in yuan in China and have included it in their foreign currency reserves.

"China has strengthened the transparency of its exchange rate policies after joining the SDR, and the yuan is getting more and more attention in the international financial market," said Guan Tongwei, a professor at Guangdong University of Finance.

"China is promoting the free floating of the renminbi based on its economic situation, market expectations and the price indexes of various countries," Guan said. "The renminbi will continue its mission to serve people all over the world." 

The US dollar hit a one-month high this week against a basket of global currencies after chair of the US Federal Reserve Janet Yellen heightened expectations of another rise in US interest rates in December, sparking broad weakness among emerging market currencies.

The China Foreign Exchange Trading System, an arm of the PBoC, in late 2015 launched an index tracking the renminbi’s value against a custom-weighted basket of currencies. 

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Jiang Jie, Bianji)

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