The Central Bank Is Unlikely To Take Action Against The Pressure Of The US Dollar Against The US Dollar.

China is not in a hurry to end. RMB Despite recent downturns, the United States has begun to pressure China on its demand for China's appreciation of the renminbi against the US dollar.

An interview with a Chinese central bank official and some bankers and analysts reveals that the Chinese government will not take action in the near future to stop the decline of the renminbi. According to HSBC Holdings PLC., the yuan has fallen 2.3% against the US dollar so far this year, showing the worst performance in Asian currencies.

The fall in the renminbi has prompted a senior US Treasury official on Monday to warn that the US government is watching closely whether China's recent allowable devaluation of the renminbi means a change in exchange rate policy, which may trigger a round of competitive currency devaluation. The official said that if China reverses the process of marketization of the RMB exchange rate, it will cause serious concern outside.

But the Chinese central bank officials and others said that China's softening of the renminbi was intended to squeeze short-term speculators who bet on the unilateral appreciation of the renminbi. Therefore, unless the RMB fluctuates too much, the Chinese government is unlikely to take action.

An official of the Central Bank of China said that part of the function of the Central Bank of China is to maintain the stability of the RMB exchange rate. Unless the renminbi appears to be a sharp drop in the stability of China's economy, it is unlikely that the central bank will intervene in the market to promote the strengthening of the renminbi.

Analysts and investors say the lower Renminbi also reflects investors' concern that China's economy will further slow down. The Central Bank of China doubled the daily trading range of the RMB exchange rate last month, exacerbating the government's downward trend in the renminbi.

Zhang Ming, a senior economist at the Chinese Academy of Social Sciences, a think-tank of the Chinese government, said market participants used this as a signal to sell renminbi because they were increasingly worried about the recent signs of slowing economic growth.

The yuan rose slightly on Tuesday, while the US dollar closed 6.1968 yuan against the yuan and closed at 6.2123 yuan last Friday. China's foreign exchange market closed on Monday due to public holidays.

In the medium to long term, investors and analysts generally believe that China will allow the renminbi to be revalued. dollar The rally has further increased the value of the renminbi on the basis of more than 33% gains since 2005. The reasons they include include expected capital inflows, a better economy later this year, and fears of strong opposition in Washington that could lead to congressional punishment for China.

Suanjin Tan, a fixed income portfolio manager in Singapore based on BlackRock Inc., said he thought the Chinese government had not changed the policy of allowing the renminbi to appreciate gradually, so he predicted that the renminbi would appreciate before the end of the year.

However, China's current policy stance may make this issue a source of debate between Chinese and American governments. The United States and other western countries have repeatedly urged China to accelerate the pace of RMB appreciation. They say that the weakening of the renminbi has given Chinese exporters an unfair advantage in competing with foreign enterprises.

People familiar with the PBOC's idea say that the renminbi needs to depreciate before it can squeeze out short-term speculators who bet on the unilateral appreciation of the renminbi. These speculators use various ways to buy renminbi, which further increases the pressure of RMB appreciation.

Last year, speculative capital inflows (partly by speculators who bet on Renminbi denominated assets) increased the difficulty of the Chinese government's management of the economy, inflamed the real estate bubble and injected too much liquidity into the financial system. One sign of China's central bank's huge involvement in restricting the Yuan's rise is that China's foreign exchange reserves increased by nearly US $510 billion to US $3 trillion and 800 billion last year. The people's Bank of China used renminbi to buy dollars in an attempt to slow down the appreciation of the renminbi.

Paul Mackel, Asia's head of foreign exchange research at HSBC in Hongkong, said the Chinese government will be cautious in the short term to prevent the re emergence of speculative demand in the renminbi.

The Chinese government hopes to convince investors of the appreciation of the renminbi. depreciation This is normal. I hope investors will think twice before considering the big bet on the appreciation of RMB. For the Chinese government, increasing the two-way fluctuation of the renminbi is a necessary condition for raising the level of exchange rate marketization.

Chinese officials repeatedly said last year that the yuan is close to its fair market value, which means that the renminbi will not appreciate significantly. Officials have demonstrated this view by narrowing China's trade surplus.

The Central Bank of China began intervention at the end of February this year, pushing the yuan down against the US dollar. The central bank has lowered its daily price of RMB to the US dollar (the RMB exchange rate can fluctuate around the middle price by 2%). According to traders and people familiar with the idea of the Central Bank of China, the Bank of China also directed banks to buy dollars.