RMB exchange rate returns to normal

The yuan's exchange rate will return to a reasonable and normal track, given there are no grounds for continued depreciation in the long run.

Ding Zhijie, a professor at the University of International Business and Economics, has echoed Chinese Premier Li Keqiang in saying China's recent adjustment to the RMB's exchange rate mechanism was aimed at giving market forces more power, and the depreciation is temporary.

The remarks were carried in an article on Friday by the China Business News.

China's ultimate goal in overhauling the mechanism was to give market supply and demand a greater role in the rate formation system, Ding said, adding the modest weakening of the yuan was a result of the release of devaluation pressure that was mostly due to external factors, especially the rallying U.S. dollar.

Although the yuan is depreciating in the short term, prospects for a robust Chinese currency are still rosy in the longer term, as China's economic growth continues to gain momentum, Ding said.

On Aug. 11, the central bank decided to let the market play a greater role in forming the yuan's central parity rate against the U.S. dollar. The RMB weakened about 3 percent in the following two days before stabilizing on increased assurance from the central bank.

The RMB depreciation has been accompanied by criticism that China is causing a currency war and attempting to boost exports through depreciation of the yuan.

China is unwilling to see a currency war, as it would do no good for the country, Premier Li said at the Summer Davos Forum in Dalian, a port city in northeast China.

Using yuan depreciation to boost exports also conflicts with the Chinese economy's ongoing structural reform, Li said, adding China has ample foreign exchange reserves and sound economic growth, leaving no basis for future depreciation of the currency.

China remains one of the drivers of global growth and is not the source of financial risks, he said.

Effective beginning Aug. 11, daily central parity quotes reported to the China Foreign Exchange Trade System before the market opens should be based on the previous day's closing rate of the inter-bank foreign exchange rate market, supply and demand, and price movements of major currencies.