It sparked fears of a global “currency war” and accusations that Beijing was unfairly supporting its exporters, but the central bank on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation.
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Thursday’s midpoint rate was set at 6.4010 per dollar prior to market open – a drop of 1.1 percent from Wednesday’s 6.3306 and lower than the day’s close of 6.3870.
China’s government has in the past tightly controlled the yuan, allowing the currency to move within a 2% band from a midpoint exchange rate set daily by the central bank.
The market-oriented exchange rate formation mechanism is more conducive to long-term stability, Yi said.
This would push the dollar even higher, weighing on inflation in the U.S. and threaten the course of economic growth overseas, two factors that might be worrisome to a Fed contemplating lifting interest rates for the first time in more than nine years.
“The 2 or 3 percent devaluation of the yuan [against the U.S. dollar] is completely meaningless”, Faber said.
Officials said the PBOC had stopped “regularly” intervening in the foreign exchange market but allowed that it could conduct “effective management” of the yuan in cases of extreme volatility.
The world’s second-biggest economy stunned financial markets on Tuesday by lowering the value of the yuan by 1.9 per cent – the biggest one-day shift in two decades – and following up with a cut of a similar scale the next day.
In early trading yesterday, Asian shares gained on hopes China would slow the fall of the yuan.
In the long run, the reforms will help China as it attempts to turn the yuan into an global reserve currency.
The threat that a cheaper yuan poses to exports and economic growth in other countries.
Still, traders remain cautious about how low the yuan might go.
A somewhat more neutral interpretation of China’s move includes the belief that China is attempting to delink from the dollar, as the anticipated end of quantitative easing in the U.S. has meant a stronger dollar and consequently a stronger RMB.
Addressing concerns over an increase in capital outflows following the devaluation, PBOC officials said they would monitor the situation to ensure “orderly” cross-border capital flows, according to media reports.
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It signaled it believed the yuan had found its proper new level and sources told Reuters it stepped up intervention in trading by ordering state banks to buy yuan at designated rates on behalf of the monetary authorities.
