However, the yuan’s unexpectedly sharp slide has roiled currencies, stocks and commodities around the world this week, stirring worries that China’s actions would trigger competitive devaluations by its trading partners, each intending to safeguard its exporters.
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China lowered the value of its currency by 0.51 per cent against the USA dollar, marking the biggest drop since August.
Falling emerging market demand slows trade and economic activity with the developed world.
The uncertainty on China led traders to sell the Australian dollar, which is seen as a proxy for Chinese growth, pushing it to its lowest since September versus the greenback and the yen.
The PBOC’s China Foreign Exchange Trade System (CFETS) repeated on Thursday that there was no basis for the yuan’s continuous depreciation and that it was stable against a basket of currencies in 2015. Its exports become cheaper, and more attractive, to foreign buyers.
Perng Fai-nan (彭淮南), governor of the Central Bank of the Republic of China, said Thursday that it is unlikely that Taiwan will face a financial crisis at a time when global financial markets have come under heavy downward pressure.
“Frankly speaking, we are still not quite sure where the PBOC boundary is at the current stage”. In a note on 6 January, HSBC Global Research wrote that the markets should be prepared for the risk of further depreciation in the Chinese currency in the near term.
The central bank has often tried to steer investors into seeing the yuan as a currency that fluctuates in both directions, much like the dollar, the yen or the euro, based on economic fundamentals.
Foreign exchange regulator has ordered banks in some of the country’s major import and export centres to limit purchases of dollars this month, three people with direct knowledge said on Friday, in the latest attempt to stem capital outflows. China’s influence over the Sub-Saharan African country will likely continue to grow with the deal, which will erase about $40 million of Zimbabwe’s debt, The Washington Post reports. It makes imports of energy and raw materials more expensive, but this is more than offset by the fall in their prices in the past year.
Shanghai shares .SSEC tanked more than 7 percent and trading was halted as the fall triggered a circuit breaker, despite recent supportive measures announced by Chinese authorities.
Oil prices rebounded from plunges earlier in the day, when Brent crude sank more than 6 percent to an nearly 12-year low of US$32.16.
In particular, analysts were swift to call out what appears to be a ham-fisted approach to managing market volatility.
China shocked the gold market in July a year ago by revealing its official reserves for the first time since 2009. Investors have now shifted their mind-set to the other extreme, and as they now bet in unison that it can only go down, that has another set of negative consequences such as capital flight.
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Part of the fear driving those markets lower is that investors are struggling to understand the People’s Bank of China’s goals – with official statements pointing to an apparent policy struggle between conservative stability and liberalizing reform.
