It was revealed on Thursday that in December China’s reserves dropped by almost $108 billion, the biggest decline on record bringing total holdings to the lowest in three years.
Advertisement
In offshore trading, the yuan declined to 6.6964 to US$1.0 by late afternoon today in Hong Kong, Bloomberg News reported.
A lower currency should make Chinese exports cheaper on world markets – a challenge for overseas competitors – but at the cost of its imports becoming more expensive in yuan terms.
China past year gave markets a greater role in determining the yuan’s value, a shift welcomed by the International Monetary Fund and others that have urged the world’s second-largest economy to let its currency float more freely.
Shares in Asia extended losses after the People’s Bank of China (PBOC) set the yuan midpoint rate CNY=SAEC at 6.5646 per dollar prior to the onshore market open, 0.50 percent weaker than the previous fix 6.5314.
The People’s Bank of China (PBOC) has spent billions of dollars buying yuan over recent months to defend the exchange rate, but has failed to stabilise market sentiment. “The larger than expected drawdown on reserves… indicates that long-term intervention is unsustainable”, which will likely lead to further falls in the yuan which in coming days, said Chester Liaw, an economist at Forecast Pte Ltd in Singapore.
Global stock markets were in the red, tracking the Chinese market, which plunged 7 percent at one point, leading to a nation-wide trading halt for the second time this week.
China’s stock selloff continued as the central bank reduced the yuan’s reference rate – the mid-point of the band in which the currency’s permitted to trade – to the weakest since March 2011.
“Foreign exchange reserves have already fallen this much due to China’s purchases of yuan to support its own currency, so it could be hard to continue”, Aso said.
The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
Advertisement
Meanwhile, the USA raised its interest rates in December and more hikes are expected in 2016. That means it has to avoid capital flight as yuan-holders trade it in for a more stable currency. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options. An aide to Senate Majority Leader Mitch McConnell on Thursday provided no timetable for a vote by that chamber. It might be at the lowest level in five years, but it’s still one of the best performing currencies in emerging markets.
