China’s central bank is capable of keeping the yuan “basically stable at a reasonable equilibrium level”, in spite of “speculating forces”, according to a report on the bank’s website on Jan 7.
The reassurance by the People’s Bank of China came as the currency’s central parity rate lost 332 basis points to 6.5646 against the US dollar on Jan 7, the lowest level since March 18, 2011, according to data from the China Foreign Exchange Trading System.
The renminbi’s exchange rate is supposed to go along with market forces, which should be the supply and demand of foreign exchanges based on the real economy, instead of speculative forces using excessive leverage, the report said.
“Some forces attempt to make profit from speculating on the renminbi. This kind of trading is unrelated to the demand of the real economy and does not reflect the real market demand and supply, which only leads to abnormal fluctuations in the yuan’s exchange rates and sends the wrong signals to the market,” it said.
“Faced with the speculating forces, the central bank has the capabilities to keep the yuan basically stable at an reasonable equilibrium level,” it added.
The renminbi will go with changes of supply and demand in the market, and its exchange rates will change in both directions, it said.
In addition, the conditions are there for the currency to stay basically stable, said the report, citing the steady overall economy.
“Even as China’s export growth declined in 2015, the share of the country’s exports in the global total has still increased. There is no necessity for China to stimulate exports and stabilize growth through competitive currency depreciation,” it said.
The central bank foresees “some uncertainty” concerning the exchange rates with the US dollar in the following period, and the impact of the US Fed’s interest rate hike has largely been digested by the market.
The central bank pointed to the fundamentals of China’s economy as a long-term factor that will prop up the renminbi.
There is no foundation for the yuan’s continuous depreciation and it remains a strong currency among international reserve currencies, it added.
