Arab Today, arab today devaluation a natural step toward a more global yuan
Last Updated : GMT 18:40:43
Arab Today, arab today
Arab Today, arab today

Devaluation a natural step toward a more global yuan

Arab Today, arab today

Arab Today, arab today Devaluation a natural step toward a more global yuan

china yuan
Dalian - XINHUA

China's surprise currency devaluation in mid-August was a natural result of exchange rate liberalization, which experts say will also promote the internationalization of the yuan.

Market turmoil following the unexpected move by the People's Bank of China (PBOC) was largely due to lack of information at the moment on central bank motives, rather than fundamental economic reasons, according to experts attending the annual meeting of the New Champions, also known as the Summer Davos, held in China's northeastern port city of Dalian.

"The devaluation was done at the correct time with correct reasons, but the result was quite a surprise," Li Daokui, who used to sit on the central bank's monetary policy committee, told the forum on Thursday.

Noting yuan's quasi-global status, Li said China's financial reforms must consider possible reactions abroad, even when the action is perfectly sensible.

The PBOC, which introduced a 1.86 percent depreciation against the U.S. dollar on Aug. 11, quickly reassured the market that it was letting the daily fixing rate move more closely along with the spot rate, a genuine effort of reform rather than the start of a sizable devaluation.

Analysts pointed out that the yuan has actually been overvalued, given strong appreciation in real effective terms in the past year.

From June 2014 to July 2015, the yuan has appreciated in real effective terms by 12 percent, mainly because of U.S. dollar appreciation, said Zhu Haibin, chief economist of J.P. Morgan China. Adding to the yuan's devaluation pressure, the currencies of many emerging markets and developed economies saw sharp weakening this past year.

"The devaluation was completely understandable and legitimate," said Lord J. Adair Turner, a senior fellow of the Institute for New Economic Thinking in Britain. "The difficulty is that people are trying to know what it means for the future."

Chinese Premier Li Keqiang has repeatedly told the market that there is no basis for continued devaluation. The same message was delivered in his address on Thursday to the Summer Davos forum, a key global occasion every year for the premier to talk on the Chinese economy.

Vowing to keep the exchange rate basically stable at a reasonable and balanced level, Li also expressed unwavering determination for reform, including liberalizing the exchange rate regime and capital account, and supporting the growth of offshore renminbi market.

The strength of the yuan in the long term, experts say, is unlikely to weaken given the economy is structurally well. But with the opening of China's capital account, there will be more frequent exchange rate fluctuations.

"The world will learn and probably get used to it," said Huang Yiping, who sits on the monetary policy board.

GLOBAL YUAN

The PBOC's market-based reform quickly received positive response from the International Monetary Fund (IMF), which called it a "welcome step" and a first step to a bigger overhaul of its currency regime.

"We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years," said an IMF spokesperson.

The IMF statement came at a sensitive time when the organization is reviewing the possible inclusion of the yuan in its basket of international reserve currencies. Experts say joining the special drawing rights, or SDR basket, is only a question of time.

"It doesn't matter this year or next year -- the trend is going," said Turner. "The internationalization of the yuan is absolutely natural for China's rise in the global economy."

In many aspects, the yuan is ready to become a more global currency. The Chinese economy, now the second-largest in the world, accounts for 12 percent of world GDP. China is also the world's largest trading nation, with the yuan settlement of trade debts rising from 1 percent in 2010 to 22 percent last year.

Meanwhile, China has also become a net capital exporter, with last year's overseas direct investment exceeding 100 billion U.S. dollars. Its landmark global initiative "One Belt, One Road" would boost China's overseas investment as well as the extensive use of its currency.

Despite the yuan's increasing global influence, experts cautioned that the internalization of a currency is in the end determined by the market.

The maturity of China's domestic financial markets and the reasonable predictability of government policies will be very important for global investors to decide whether to hold the yuan as a reserve currency, said Randall Kroszner of University of Chicago, a former member of the Federal Reserve Board of Governors.

"It's an enormous challenge," he said. "But there is no reason why China can't manage that and move toward market-oriented reforms."

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today devaluation a natural step toward a more global yuan Arab Today, arab today devaluation a natural step toward a more global yuan

 



Arab Today, arab today
Arab Today, arab today Mohamed Bahari prepares new collection for spring 2017

GMT 06:15 2017 Monday ,27 February

Mohamed Bahari prepares new collection for spring 2017
Arab Today, arab today 17.4 million tourists visit UAE in 2016

GMT 00:47 2017 Monday ,27 February

17.4 million tourists visit UAE in 2016
Arab Today, arab today Sheds light on major steps in 12-year career

GMT 06:07 2017 Monday ,27 February

Sheds light on major steps in 12-year career
Arab Today, arab today UN envoy sets out framework

GMT 07:25 2017 Monday ,27 February

UN envoy sets out framework
Arab Today, arab today Ayat Abaza says state TV presented major stars

GMT 03:52 2017 Sunday ,26 February

Ayat Abaza says state TV presented major stars
View News in Arabic - Business: اقتصاد دولي
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today Reading therapy relieves mental disorders

GMT 15:39 2017 Friday ,24 February

Reading therapy relieves mental disorders
Arab Today, arab today UK appoints 1st Scotland Yard chief in 188 years

GMT 05:14 2017 Thursday ,23 February

UK appoints 1st Scotland Yard chief in 188 years
Arab Today, arab today Penguins in the age of dinos

GMT 11:44 2017 Saturday ,25 February

Penguins in the age of dinos
Arab Today, arab today Pluto's unruly moons

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons
Arab Today, arab today 'Constructive' Vauxhall talk with union

GMT 08:54 2017 Saturday ,25 February

'Constructive' Vauxhall talk with union
Arab Today, arab today Tesla back into red but revenue grows

GMT 07:27 2017 Thursday ,23 February

Tesla back into red but revenue grows
Arab Today, arab today Reasons for the delay 'On the Stairs of Servants'

GMT 06:42 2017 Saturday ,25 February

Reasons for the delay 'On the Stairs of Servants'
Arab Today, arab today Ex-yoga missionary unleashes rage

GMT 12:16 2017 Thursday ,23 February

Ex-yoga missionary unleashes rage

GMT 07:23 2017 Friday ,24 February

Ola Ghanem hopes to work with M.Ramadan

GMT 12:35 2017 Tuesday ,21 February

63-Year-Old Woman Delivers Baby

GMT 18:23 2017 Friday ,24 February

Fadi explains secrets of  Nancy Ajram's newlook

GMT 10:28 2017 Wednesday ,22 February

Milan laughs while Rome cries

GMT 19:45 2017 Monday ,20 February

Sarah Belamesh designs antiques of "ceramic"

GMT 10:51 2017 Saturday ,25 February

Pigs with edited genes show resistance

GMT 14:04 2017 Friday ,24 February

Messi visit will contribute in tourism

GMT 13:12 2015 Saturday ,09 May

Sheikh Sultan opens Sharjah Centre

GMT 22:42 2017 Thursday ,23 February

Nasima Gamei revives heritage in jewelries
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday