His optimism may also be based on the fact that the nation’s current account hit a surplus for the 40th straight month and that it has the world’s sixth-largest foreign exchange reserves, at $371.5 billion.
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The stronger fixing for the yuan came after the People’s Bank of China (PBoC) reassured financial markets by pledging to seek a stable currency after a shock devaluation of nearly two percent on Tuesday.
2015 has not been encouraging so far in terms of global commerce, with world trade growing at a meager rate of 0.7 percent in Q1, which has been bad news, especially for China. “The Chinese yuan has appreciated by 80 percent over the past two years against the yen“. The uncertainty about when the Fed might raise the interest rates now speak against significantly higher gold prices. Because of the rising value of the dollar, American industrial companies have lost a huge percentage of the export pie.
The FTSE 100 was also weighed down by a rallying pound, which jumped 0.5% against the dollar to $1.567 after the Office for National Statistics reported that inflation rose to 0.1% year-on-year in July, up from 0% in June.
The devaluation last week triggered falls in other Asian currencies such as those of Australia, New Zealand, Indonesia, Singapore and Taiwan, fuelling fears of a currency war.
Chinese stocks plunged on Tuesday as the yuan weakened against the dollar, reigniting fears that Beijing may be intent on a deeper devaluation of the currency despite the central bank’s comments that it sees no reason for a further slide. “Economic fundamentals don’t support a steady yuan”.
A weaker yuan might prompt complaints by foreign manufacturers.
China’s securities regulator said last Friday that the government will allow market forces to play a bigger role in determining stock prices, the first official signal from Beijing that it could be moderating its efforts to prop up its equity markets via state-backed financial institutions.
Between Tuesday and Thursday of last week, China’s central bank – the People’s Bank of China – allowed the yuan to fall to its lowest level against the dollar in four years.
With the central parity rate reform helping the yuan better reflect market consensus and the three-percent depreciation easing downturn pressure, the stabilized yuan may help investors regain their interest in China-related products.
“The central bank has withdrawn from the normal mode of intervention”, said Yi Gang, head of the unit that runs China’s foreign exchange system.
To be sure, it’s not clear how serious the situation is yet, Summers said.
“The impact of the yuan move on global markets isn’t large”, he said. Until recently, the Bank would ignore the previous day’s trading when setting the new day’s price fix.
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The Shanghai Composite Index closed down 6.1 per cent at 3,749.12 points in its biggest daily decline since July 27, snapping a three-day winning streak. Should there be any speculative attack on the yuan, PBOC, with trillions of US dollar reserves, will be capable of defending the currency and defeating the offenders.
