Chinese yuan two-way fluctuation will become a new normal: central bank

A view of the PBC headquarters in Beijing Photo: cnsphoto

The exchange rate of the Chinese yuan with the world’s major currencies will continue to depend on market supply and demand, and current changes in international financial markets indicate that bilateral yuan rate fluctuations will become the new normal, a senior Chinese official said on Sunday.

Since the beginning of this year, the yuan exchange rate has fluctuated, while remaining basically stable at a reasonable and balanced level, said Liu Guoqiang, vice-governor of the People’s Bank of China (PBC), the central bank.

China’s currency dynamics are determined by the market, and the yuan’s exchange rate is expected to remain stable in the coming months, Liu said.

The Chinese yuan has strengthened against the US dollar since April, mainly thanks to the strong economic recovery in China after the COVID-19 pandemic and the strong trend in exports, after the Chinese currency weakened to a four-month low against the US dollar at the end of March.

UBS sees the Chinese yuan strengthen to 6.35 against the US greenback.

“As the factors of appreciation and depreciation of the yuan exchange rate both exist in 2021, the exchange rate is not expected to have a particular tendency to appreciate or depreciate,” said Tang Jianwei, senior macroeconomic analyst at the Bank of Communications.

Tang predicts that the yuan’s exchange rates will hover between 6.3 and 6.7, centered around 6.4 to 6.5. The exchange rate appreciation in 2021 is expected to be significantly lower than in 2020.

“The PBC has improved a managed floating exchange rate system based on market supply and demand, adjusted against a basket of currencies. This system is suitable for the Chinese exchange rate system,” Liu said.

The PBC will pay close attention to the direction of investor expectations, fully play the role of the exchange rate in the adjustment of China’s macro economy. It is important to keep the basic stability of the exchange rate at a reasonable and balanced level, he added.

The Chinese currency’s central parity rate strengthened 164 pips to 6.4300 against the US dollar on Friday, according to the China Foreign Exchange Trade System.

In China’s spot foreign exchange market, the yuan may rise or fall by 2% against the central parity rate on each trading day. The central parity rate of the yuan to the US dollar is based on a weighted average of the prices offered by market makers before the interbank market opens on each business day.

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