Experts: China has sufficient conditions to maintain stability of yuan exchange rate

The Chinese economy is generally stable while making good progress, and the country enjoys a fundamental equilibrium in the balance of international payments and has sufficient foreign exchange reserves. Therefore, it can maintain the stability of the yuan exchange rate, experts recently confirmed.

“Both the onshore and offshore exchange rate of the Chinese yuan against the U.S. dollar broke the 7 yuan level on August 5, which was a reflection of the changes in market sentiment,” said Wen Bin, a chief researcher of China Minsheng Bank.

Wen explained that the global financial market had fluctuated drastically due to such factors as the U.S. plan to impose an additional 10 percent tariff on $300 billion worth of Chinese imports, and the U.S. Federal Reserve’s (Fed) decision to cut interest rates.

China adheres to a market-oriented and floating exchange rate system which is formulated against a number of currencies, said Lian Ping, chief economist with the Bank of Communications.

As affected by market factors, the yuan has depreciated, but will most likely go up again in the future, said Lian, adding that these are all normal fluctuations under the floating exchange rate system, and there’s no need to pay too much attention to the “7 yuan level”.

Despite the recent depreciation of the yuan against the U.S. dollar, the value of the yuan has risen if viewed from a historical perspective.

From the beginning of 2005 to June 2019, the nominal effective exchange rate of yuan appreciated by 38 percent and the real effective exchange rate of the currency by 47 percent, making it the most reliable currency among all Group of 20 (G20) economies as well as witnessing one of the highest appreciation rates around the world, as revealed by data from the Bank for International Settlements.

Yi Gang, governor of the People’s Bank of China (PBOC), China’s central bank, said that the Chinese economy is generally stable while achieving progress, and that the economy has shown resilience, potential, and leeway.

Yi explained that as China enjoys an equilibrium in the balance of international payments and has sufficient foreign exchange reserves, more enterprises are becoming involved in the foreign exchange market, thus the interest rate gaps between China and major economies in the world are in an appropriate range. He added that these conditions guarantee the basic stability of the yuan exchange rate.

“At present, China sees a balance of international payments, generally controllable financial risks, and a stable yuan exchange rate index. On the contrary, the U.S. dollar index still has room to decline. The yuan is expected to continue to fluctuate in both directions against the U.S. dollar within a reasonable and balanced range,” said Wen.

“As a responsible major country, China will scrupulously abide by the commitments relevant to exchange rates made during the G20 summits, stick to the market-based exchange rate system, never pursue competitive devaluation or use the exchange rate as a tool to deal with external disturbances including economic and trade frictions,” stressed Yi.

“China didn’t attempt to gain additional advantages for trade during the 1997 Asian financial crisis or the 2008 global financial crisis through exchange depreciation. Instead, it adopted effective measures to stabilize the exchange rate, making great contributions to the recovery of the global economy,” said Zhao Qingming, chief economist of the derivative institute of the China Financial Futures Exchange.

Reform and opening-up is a fundamental state policy of China, and the country should stick to reform and opening-up in its foreign exchange management, so as to further improve cross-border trade and investment facilitation and better serve real economy, said an executive of the PBOC, stressing that policy orientation will not change despite recent events.