PBOC confident of a stable yuan as it falls past 7

The Chinese yuan yesterday breached the symbolic 7 mark — a closely watched barrier — against the US dollar, the first time in 11 years.

In the afternoon of Asian trading hours, the onshore Chinese yuan traded at 7.0304 against the Greenback, while the offshore yuan changed hands at 7.0807 against the US dollar.

The Chinese currency last cracked the 7 threshold against the US dollar during the global financial crisis in 2008.

The People’s Bank of China, the central bank, set the yuan’s midpoint at 6.9225 against the dollar yesterday, its weakest level since December 2018.

The PBOC reiterated yesterday that it is confident of keeping the yuan’s exchange rate stable after both the onshore and offshore yuan fell beyond seven against the US dollar.

It attributed the weakening of the currency to unilateral and protectionist measures, as well as the impact of additional tariffs on Chinese goods, according to an online statement.

The US threat of imposing an additional 10 percent tariff on US$300 billion worth of Chinese goods, starting September 1, disrupted market expectations, causing global stock and foreign exchange markets to slump, said Zhang Yansheng, a researcher with the China Center for International Economic Exchanges.

“China is the victim of US trade bullying,” he added.

Wang Youxin, a researcher with an international financial research institute under the Bank of China, regarded the yuan devaluation as a normal response to external changes.

“The additional tariff hikes on Chinese goods will undoubtedly influence on China’s exports and forex revenue. It is in line with expectations that the yuan’s exchange rate fluctuates with external changes,” Wang said.

Despite the recent weakening, the yuan has strengthened 20 percent against the dollar over the past two decades, the strongest among major currencies in the world.

The yuan remained stable and strong against a basket of currencies, with the China Foreign Exchange Trade System yuan exchange rate composite index up 0.3 percent since the beginning of the year.

Although the yuan’s central parity rate had weakened about 0.53 percent against the dollar by Friday, its depreciation was much smaller than those of the Korean won, the Argentine peso and the Turkish lira.

“Seven is just a number. It is normal to rise and fall,” said Bai Ming, deputy director of the International Market Research Department under the Ministry of Commerce.

“The PBOC has the experience, confidence and capability necessary to keep the yuan’s exchange rate stable at a reasonable and balanced level,” the statement said.

The yuan’s exchange rate is determined by long-term economic fundamentals, although it is affected by the market supply and demand as well as the dollar’s movement in the short term.

From the macro perspective, the yuan’s exchange rate is buoyed by the country’s sound fundamentals, strong economic resilience, stable fiscal position, controllable financial risks, balanced cross-border capital movement and sufficient foreign exchange reserves.