China signals possible change of yuan policy

Mar 06, 2017 (LBO) – China has signaled possibly altering its course on exchange rates this year under pressure from US Federal Reserve rate rises and US President Donald Trump’s threats of a trade war.

In an annual government report, the central government said there was a requirement to ensure stable global status of the yuan as one of its major tasks, dropping the line “keeping a stable yuan at a reasonable and balanced level” that has been including in the report for the past three years, CNBC reported.

“The renminbi exchange rate will be further liberalised, and the currency’s stable position in the global monetary system will be maintained,” according to the government work report read out by Premier Li Keqiang at the National People’s Congress on Sunday.

The new wording may indicate less intervention in the yuan exchange rate this year, with the currency showing less appeal for investors, even though it had obtained a nominal reserve currency status from the International Monetary Fund, analysts said.

“The capital controls will hurt the yuan’s status and reputation,” said Shen Jianguang, chief economist with Mizuho Securities Asia.

“In the past two years, the status of the yuan as an international settlement and valuation currency, as well as the scale of the yuan’s fund pool offshore, have fallen.”

China spent one trillion dollars of its foreign exchange reserves in recent years to bolster the yuan’s value.