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Central Bank Chief Emphasizes Stability as Yuan Ends Six-week Drop

| Jul 25, 2016 10:14 PM EDT

The International Monetary Fund is set to include the Chinese yuan as part of its reserve currency basket starting October.

The stability of the Chinese currency will be the main objective of efforts from the People's Bank of China, says the bank chief on Sunday.

Speaking on the sidelines of the Group 20 (G20) meetings of finance ministers, PBoC Chief Zhou Xiaochuan told the South China Morning Post that they aim to maintain a stable value of yuan in the days to come.

His statement comes after the yuan saw a six-week drop in its value last week.

Yuan Stability

During the interview with the SCMP, Zhou highlighted Beijing's goal to manage a "floating exchange rate" system to defy one-way betting on the Chinese currency's future.

"We are sticking with a managed floating exchange rate system, and that's a policy stance we have been reiterating for years," he told the outlet.

He also clarified that yuan would be maintained against a basket of currencies, saying: "In my view, that's the line for all people to understand [about China's yuan policy]."

This was the first time in weeks that the central bank chief made any statement about the yuan as he refused to hold press conferences or release official statements on the matter.

According to Ding Shuang, chief China economist at the Hong Kong-based Standard Chartered, the suspicion on the PBoC's move on keeping the yuan stable was questioned due to its weakening streak.

"The yuan had been kept stable against a basket of currencies for quite a long time, but recently it had weakened, so there might be some early suspicion in the international community," Ding said.

Yuan's Six-week Run of Losses

A Bloomberg report last week noted the sudden change in the onshore value of the yuan after seeing this year's longest weekly losses streak that ran for six weeks.

According to the report, the end of the yuan's long-running losses may be due to the central bank's efforts in negating pressures from the dollar which is becoming stronger as the Chinese currency weakens.

Prior to this, speculations were already circulating about the possible meddling of the central bank in the value of the yuan.

The Chinese currency suddenly gained 0.04 percent, reaching a value of 6.6735 a dollar as of 6:17 PM in Shanghai following a drop past the ideal 6.7 value on June 18.

This, says Bloomberg, is the first time the yuan reached such a low since 2010 which makes it even more surprising for the currency to regain its value by about 0.2 percent from the six-week drop.

According to an analysis from the Commonwealth Bank of Australia, this may be the part where China "drew a line in the sand just under 6.7, leading to a quick unwind of long dollar-offshore yuan positions."

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