The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Foreign Exchange

China: Caution is key for PBoC

China opens door to currency flexibility; ‘No need for major revaluation’

The value of the yuan might go down as well as up. That was the message from the People’s Bank of China when it announced last month that it was removing the dollar peg adopted in 2008 as an anti-crisis measure and returning to a managed float against a trade-weighted basket of currencies. To emphasize the point, on the first day of the new regime the PBoC left the reference rate unchanged at 6.8275 before allowing a series of small appreciations in the following week.

In part, the PBoC’s emphasis on currency "flexibility" might have been intended to discourage hot money inflows by making it clear that yuan appreciation is not a one-way bet. Yet the central bank also implicitly rejected calls by US policymakers for a revaluation of the currency. "With the balance of payments account moving closer to equilibrium, the basis for large-scale appreciation of the yuan exchange rate does not exist," it said.

Many analysts disagree, quoting figures as high as 50% for the undervaluation of the yuan. Others, however, endorse the central bank’s assessment. "The Chinese trade surplus has declined continuously over the past two years," says Frederic Neumann, co-head of Asian economic research at HSBC.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree