A cheaper yuan will help Chinese exports by making them less expensive on overseas markets.
Earlier yesterday, the PBOC said there was no basis for continued depreciation of the yuan. Central to this is a bid to have the yuan accepted by the worldwide Monetary Fund into its basket of reserve currencies, placing the yuan on par with the dollar, euro, yen and British pound, and boosting China’s global stature.
On Tuesday, the People’s Bank of China (PBOC) reformed the exchange rate mechanism to better reflect market development in the exchange rate of the yuan against dollar.
“The overriding motivation for the government is that they recognize that financial reform is a necessary component of economic restructuring to make the Chinese economy more sustainable over the longer term”, he says.
The stronger dollar against currencies around the world is a consideration for central bank policymakers deciding whether to hike rates for the first time in nine years, Fisher acknowledged.
The PBOC also said on Thursday that it would monitor “abnormal” cross-border flows after the devaluation raised fears that investors would seek to pull capital out of in anticipation of further falls in the currency.
Under a managed floating exchange rate system, the value of the yuan is determined by the market.
Schlossberg said the Chinese economy is in serious trouble, and the currency devaluation is a direct response: “This is a reactive move, not a proactive move”.
Shanghai – Copper advanced as metals reversed losses after China’s central bank eased concern about a disorderly devaluation of the yuan.
Elsewhere, Australian shares were down, with the S&P/ASX 200 index closing 0.6% lower at 5,356.54 points. The midpoint is a guiding rate, from which trade can rise or fall 2% during the day.
This is called the daily fixing.
The yuan fell for three consecutive days and had repeatedly touched fresh four-year lows since Tuesday, when the People’s Bank of China (PBOC) surprised the market by devaluing the yuan by almost 2 per cent. Oil costs rebounded from close to six-and-a-half-year lows on Friday however have been nonetheless anticipated to stay beneath strain on account of considerations about oversupply and weak global demand.
The central bank said it will step in when the market sees excessive volatility or becomes swayed by herd behavior.
“Virtually any economic policy decisions by PBoC related to currency and the financial sector should be viewed through this lens”, he said in an article posted Friday on the ADB website.
The dollar was steady against its Japanese counterpart at 124.42, off its two-month high of 125.28 hit on Tuesday.