Spotlight: Forex adjustment of RMB draws worldwide attention
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E-mail Xinhua, August 13, 2015
Media, experts and scholars from overseas share the view that the adjustment of the exchange rate mechanism of the Chinese currency by China's central bank is an important move to promote the marketization of the renminbi and would not lead to the slump of the currency, let alone a "currency war."
PROMOTING MARKETIZATION OF RMB
Annika Breidthardt, coordinating spokesperson for Economic and Financial Affairs of the European Commission, lauded the move, saying that "we consider this a positive development" as the value of any currency should be determined by economic fundamentals.
Tang Zhimin, director of China ASEAN Studies under Bangkok-based Panyapiwat Institute of Management, believes that Beijing is inclining to marketize the exchange rate of the RMB, which plays a positive role in the internationalization of the currency.
Yang Zhao, chief economist of Nomura China, said it is a "pivotal step" of the People's Bank of China (PBOC) to transform the country's financial reform into a market-based one.
"In terms of timing, the PBOC might have taken into account the weakening economic growth and market expectation of RMB depreciation, so that the liberalization will lead to a depreciation to support China's growth somehow," Zhao said.
FACILITATING RMB'S ENTRY INTO SDR
Correcting the discrepancy between the central parity rate and the actual trading rate of the RMB, Tang said, would facilitate the internationalization of the currency and its entry into the currency basket of Special Drawing Rights (SDRs) by the International Monetary Fund (IMF).
"A market-based exchange rate will help resolve some technical issues for the RMB to enter SDR, albeit the IMF's November SDR review will be determined by more sophisticated criteria," Zhao said, adding that a market-based exchange rate of the RMB will increase China's bargaining power when President Xi Jinping visits the United States in September.
Rajrishi Singhal,senior Geo-Economics research fellow with Indian think tank Gateway House based in Mumbai, told Xinhua that the PBOC is signalling with this two-stage devaluation that it is moving the RMB closer to an exchange rate determined by the market.
"China has been steadily working on internationalizing the yuan through various measures such as establishing RMB clearing infrastructure in major global trading centers," Singhal said, adding that this move would help the currency to be used by the International Monetary Fund to calculate the value of SDRs and counted among the major currencies in the world.
RMB UNLIKELY TO SLUMP
The central parity rate of the yuan weakened by 704 basis points, or 1.1 percent, to 6.401 against the U.S. dollar on Thursday, narrowing from Wednesday's 1.6 percent and almost 1.9 percent on Tuesday.
The sharp falls came after the PBOC adjusted the exchange rate formation mechanism on Tuesday, a move it said was designed to better reflect market development in the exchange rate of the yuan against the U.S. dollar.
The market reacted with surprise and concern at the currency's prospects, fearing the currency would further slip.
But Zhang Xiaohui, assistant governor of the PBOC, said there is no grounds for persistent and substantial depreciation as the value of the yuan has gradually returned to market levels as the discrepancy between the central parity rate and the actual trading rate was corrected after declines in the past few days.
"The central bank described this as a 'one-time correction' to bring the reference rate closer in line with prevailing market rates, rather than a major policy shift," said Julian Jessop, chief global economist of Capital Economics Consulting Group, adding that it is imprudent to characterize it as a "devaluation."
In the eyes of Jessop, talks of the move to "trigger a fresh wave of global 'currency wars' is clearly overdone," as "most currencies have still fallen substantially further against the U.S. dollar."
"The idea that some additional, relatively limited moves in the renminbi-dollar rate will have a material impact on the economies of Europe or the U.S., let alone the rate decisions of the Fed, is frankly ludicrous," Jessop said. Endi
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