The central bank aims to open up its currency market to foreign investors and extend market trading hours to help unify onshore and offshore yuan exchange rates, he added.
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The yuan tumbled 1.8 per cent, the most in two decades, on the day of the devaluation and declines have since moderated as the PBOC intervened via agent banks and signalled its support for the currency.
CHINA CALM: The dollar was buying 6.3901 yuan, little changed from the previous change after Zhang Xiaohu, a deputy governor at People’s Bank of China, said Thursday that there is “no basis for persistent and substantial devaluation”.
Ever since the People’s Bank of China announced on August 11 that it was going to depreciate the renminbi (RMB) in a “one-off” move, the global financial community has been scrambling to figure out how to interpret the decision. Massachusetts described the yuan’s current rate as “near equilibrium”.
“The central bank has withdrawn from the normal mode of intervention”, said Yi Gang, head of the unit that runs China’s foreign exchange system.
“China is still a big unknown, and the market is pricing in the worst” scenario, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
However, other Asian currencies fell, led by Malaysia’s ringgit, which suffered one of its worst one-day declines on Friday, falling to a fresh 17-year low.
“China does not have the need to start a currency war to gain advantage”, he said. Despite that, the government held to its longstanding practice and kept it closely linked to the dollar, which has grown stronger as the US economy has rebounded.
On Thursday, after the yuan had fallen by more than 3% in just three trading sessions, central bank officials called an exceedingly rare press conference, and sought to explain their reasoning. “Chinese markets have stabilized, with the yuan mostly flat”. Reports on US consumer sentiment and producer prices are due after data showed retail sales expanding in July.
The International Monetary Fund has praised China’s moves this week, with a spokesman calling the shift “a welcome step as it should allow market forces to have a greater role in determining the exchange rate”.
A weaker yuan would reduce the price of Chinese goods, pushing down already-low U.S. inflation of 1.3 percent.
Kit Juckes, of Societe Generale, said that he expected the Chinese economy to continue slowing, such that, “albeit at a more measured pace and with less fanfare than this week, we’ll see more yuan weakness in the weeks and months ahead”.
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In addition, to its attempts to restore export volumes it is also rumoured that the Chinese are hoping to achieve reserve currency status.
