RMB value gap basically covered, currency still strong: PBOC

Aug 17, 2015 Following the recent devaluation of the Yuan, a Chinese central bank official has asserted that the country’s currency will remain strong for a long time, after it was rumored that the devaluation will lead to a currency slump.

Zhang Xiaohui, Assistant Governor of the People’s Bank of China (PBOC) said this during a press conference:

“After two days adjustment, the value of the Yuan has gradually returned to market levels. The three-percent accumulated depreciation pressure has been released at one time. It can be said that the correction of discrepancy has been basically completed,”

The central parity rate of the Yuan weakened by 704 basis points to 6.401 against the U.S. dollar last week; however the gap reduced by 1.9 a few days later.

The sharp decline came on the heels of PBOC’s adjustment of the exchange rate formation mechanism; a move it said was designed to better reflect market development in the exchange rate of the Yuan against the U.S. dollar.

The move took the global stock market by surprise and raised concerns over the currency’s prospect, but the central bank’s official went on to say that there is no ground for persistent depreciation and that the adjustment will make China’s foreign exchange rate formation more market-oriented.

“Seeing from a long-term period, the Yuan is still a strong currency. When other elements in the economy and the accumulated discrepancy are corrected, and judging from China’s current account and the fact that we have always insisted on a prudent monetary policy, the Yuan will be on the rise in the future,” said Zhang.

Yi Gang, who is also director of the State Administration of Foreign Exchange, further pointed that under a managed floating exchange rate system, the value of the Yuan will be determined by the market and that the apex bank will focus more on improving the exchange rate formation mechanism.

“We believe that a market-oriented mechanism is in favor of long-term stability. This is a favorable news for the confidence in the Yuan and the internationalization of the Yuan,” said Yi.

Yi concluded by dismissing some media reports saying that Chinese authorities had demanded 10-percent depreciation in the Yuan by the end of the year in a bid to rescue the country’s slipping exports.

“We don’t need to boost exports by adjusting exchange rates. China’s exports are doing fine. It’s completely groundless to say that the Yuan will be devalued by 10 percent to boost export and even dub it a government intention,” Yi said.

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