On Friday, the People’s Bank of China set the yuan midpoint at 6.3990 yuan to the dollar, slightly stronger than Thursday’s levels.
The world’s second-biggest economy stunned financial markets on Tuesday by lowering the value of the yuan by 1.9 per cent – the biggest one-day shift in two decades – and following up with a cut of a similar scale the next day.
The People’s Bank of China-the country’s central bank-devalued its notoriously tightly controlled currency (Chinese Renminbi) by 1.9 percent against the U.S. dollar between Monday night and Tuesday morning, August 11, 2015.
“The central bank has already withdrawn from regular intervention”, Yi said.
The PBOC also said yesterday that it would monitor “abnormal” cross-border flows after the devaluation raised fears that investors would seek to pull capital out of China in anticipation of further falls in the currency. Massachusetts described the yuan’s current rate as “near equilibrium”.
The bank had on Tuesday announced it would start setting the daily rate based partly on the previous day’s trading, bringing the yuan closer to a free-floating currency. Still, market players are not sure how much more the dollar can gain, assuming the yuan could fall further in the face of a slowdown in the Chinese economy.
But he added that the PBOC will implement “effective management” of the exchange rate in case of external shocks or extreme currency volatility. Central bank officials denied suggestions that they were preparing to push the currency down 10 percent in order to support exports.The offshore yuan was trading 0.76 percent weaker than the onshore spot at 6.448 per dollar. He says the change also improves the chances China’s currency will play a larger role in global commerce.
Finally, there’s the prospect it will force the U.S. Federal Reserve to rethink a widely expected interest rate hike this fall – a possibility that creates more uncertainties for financial markets.
Shanghai copper futures advanced 0.6 percent to 39,580 yuan a ton and aluminum was little changed at 12 140 yuan a ton.
Then there’s the chance that other countries will adopt copycat devaluations to help their exporters compete with China, thereby igniting a currency war that disrupts worldwide trade.
A devalued yuan would make Chinese products cheaper overseas, therefore rendering Chinese companies more competitive on global markets.
It was also lower than Wednesday’s close, and comes after China adopted a more market-oriented method of calculating the currency rate in a move widely seen as a devaluation.