PBOC Says “Don’t Worry, Be Happy”

In the previous two days, the central rate – around which the yuan is allowed to trade in a band of plus or minus 2 percent – had been marked 1.9 and 1.6 percent lower, respectively.

Vice-governor Yi said China would quicken the opening of its foreign exchange market and would attract more foreign investors as it liberalises its financial markets.

The central bank also intervened in the market directly on Thursday, using dollar reserves to support the currency.

Flickr/Bob AdamsFirst it was a stock market meltdown, now it’s a weakening currency. The dollar was steady against its Japanese counterpart at 124.42, off its two-month high of 125.28 hit on Tuesday.

If all that is true then why did the Yuan continue to slide yesterday and why is it still sliding today? The contract slipped fell $1.07 to close at $42.23 on Thursday, its lowest close since March 3, 2009.

Craigs Investment Partners broker Chris Timms said currency wars were not a new phenomenon but he believed the latest move by the China central bank was to shore up its economy after a run of poor economic data.

According to reports from Bloomberg this morning, “the yuan’s tumble slowed after the Peoples’ Bank of China said that there’s no basis for depreciation to persist and policy makers will step in to control large fluctuations. If there are distortions, such as a very large gap between the onshore and offshore rates, the central bank will come in and stabilize the market”.

Chinese banks were also rumoured to be supporting the yuan by buying up the currency and selling dollars.

After global stock and currency markets staggered in response, the PBoC went on the offensive Thursday, telling reporters that the yuan was still a strong currency and that Beijing would keep the unit stable. Oil fell 0.4 percent, while nickel headed for a 2.3 per cent loss since August 7.

The falling yuan roiled markets across Asia, though much of the region steadied by Friday.

The spot rate is now allowed to trade within a range 2 per cent above or below the official fixing on any given day.

Beijing is pushing for the yuan to become one of the reserve currencies in the global Monetary Fund’s SDR (special drawing rights) group. The worry for that nation is that a weaker yuan will hit China’s imports, including products from Malaysia at a time when the nation is already facing lower commodity prices and the prospect of political instability.

“A flexible RMB that is free to move up or down is of enormous benefit to China and the world economy”, he said, saying that the greenback, the Euro and the Yen are all flexible currencies.