Chinese renminbi hits three-year high against US dollar

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BEIJING (China Daily / ANN): The renminbi strengthened against the US dollar to reach 6.3858 on Friday, a record since May 2018, but experts say the rapid appreciation of the Chinese currency may not last long, because market forces will cause the exchange rate to fluctuate.

The latest signals from policymakers have indicated that China will let the relationship between market supply and demand determine the value of the RMB, and appreciation is neither a tool to boost exports nor to offset the impact of rising commodity prices, they said after the currency hit multi-year highs.

The RMB has gained more than 10 percent over the past year, supported by China’s economic rebound from the Covid-19 pandemic and foreign capital flows into the country.

A meeting between the People’s Bank of China, the country’s central bank, and foreign exchange market participants on Thursday warned that any one-sided bets on the RMB should be avoided, and that the exchange rate forecast would lead the market down. In error.

“China should stick to a managed floating exchange rate system based on market supply and demand and adjusted by reference to a long-term basket of currencies,” a statement said on the website. from the central bank after the meeting.

There are many market and policy factors that will impact the forex market in the future, and the RMB is likely to appreciate or depreciate. “No one can accurately predict the exchange rate,” he said.

The main risk of such a strong yuan is that it hurts exports, and therefore producers, as well as high commodity prices, during a period when exports are still very important to China while Western countries are recovering from Covid shocks, Chris said. Turner, economist at the Dutch bank ING.

The central bank will not intervene until the RMB exchange rate is in line with economic fundamentals and one-sided speculation remains contained, said Robin Xing, chief China economist at Morgan Stanley.

Reflecting this, the so-called countercyclical factor in the daily fixing, a tool the central bank uses to smooth out volatility in the forex market, has been neutral during recent fluctuations in the onshore RMB exchange rate against the US dollar, added. Xing.

Many analysts have agreed that the value of the RMB is primarily determined by economic fundamentals, in which China still faces many challenges in the medium to long term, implying that there is unlikely to be a outperforming currency.

Liu Guoqiang, vice-governor of the central bank, promised in an interview last week that China will keep the RMB exchange rate at basically stable levels.

“Two-way fluctuations”, be it appreciation or depreciation, “will become the norm in the future”, with the exchange rate continuing to depend on market supply and demand as well as changes. in global financial markets, Liu said.

Official statements suggest that the Chinese monetary authorities wish to maintain a prudent policy and view the exchange rate policy as conforming to a broad policy framework, which includes economic growth, prices, employment and financial stability, economists said. from Commerzbank.

Discussions have been heated recently over whether a strengthening of the RMB, in terms of percentage gains against the dollar, will offset rising import prices for raw materials, following comments by a senior official from the central bank that the appreciation of the RMB is the result of economic growth and rising purchasing power. of the currency, as part of the monetary easing policy in the major economies.

“The impact is expected to be minimal,” said Turner, who added that the Chinese government needs several tools to limit the increase in production costs caused by the rise in commodity prices, which is in part due to the expected infrastructure projects resulting from aggressive stimulus measures in the United States. “It is possible for the PBOC to let the yuan move on its own.” – China Daily / Asia News Network

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