China Yuan Depreciation Only Temporary According To Economic Expert
Homar Murillo | | May 08, 2014 11:33 PM EDT |
A Chinese economist in an interview with the China Securities Journal said that recent depreciation of the Renminbi, or Yuan, will only be temporary.
The prediction of Yu Yongding, an economist from the Chinese Academy of Social Sciences came Wednesday reported the journal.
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Yu said that his prediction is based on the fact that China has a huge surplus of current and capital accounts amounting to approximately 125 billion USD.
During the first quarter of the current year, China's foreign exchange reserves have increased to 769 billion Yuan (125 billion USD) while the Yuan-USD exchange rate decreased by approximately 3 percent.
On Thursday, the China Foreign Exchange Trading System reported that the value of the Yuan decreased by 15 basis points bringing its central parity rate to 6.1557 against the U.S. dollar.
Yu does not consider the Yuan's depreciation as an extreme cause of worry, but even considers it as positively helping China decrease its losses resulting from arbitrage and speculation that of which went out of control in 2013 after Yuan internationalization increased.
Yu explained that the depreciation of the Yuan increased costs and risks of arbitrage and foreign speculation, slackened the inflow of hot money and contributed to the preservation of financial stability.
The decreasing economic growth rate reported since last year has benefitted capital outflow which likewise was a contributory factor to the depreciation of the Yuan, Yu further said.
According to Yu, the central bank should not stop its intervention even with the full liberalization of the exchange rate market.
Yu added that the country should focus on veering away from its old growth method rather than steering clear of economic decline.
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