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China stresses stable yuan amid fragile confidence, reiterates need.

Photo : Bloomberg

China reiterates the importance of preventing one-sided movements in the yuan amidst a strengthening dollar and negative sentiment affecting currencies across Asia.

In a report released by the People’s Bank of China (PBOC) on Thursday, the nation emphasized its commitment to swiftly correcting any imbalances in yuan trading and avoiding excessive volatility. This statement comes as the Chinese currency faced pressure, dropping to its lowest level since November amid speculation that the US Federal Reserve would not rush to cut interest rates and concerns over China's economic recovery.

Deputy Governor of the PBOC, Zhu Hexin, underscored the central bank's determination to maintain the yuan's stability during a press briefing in Beijing, stating that their goal remains unchanged.

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The yuan remained relatively stable, trading at 7.2391 per dollar, with the PBOC setting its daily reference rate at 7.1020 per dollar. Earlier in the week, the central bank unexpectedly adjusted the fixing to allow for moderate depreciation.

While the PBOC's remarks serve as a customary warning against speculative trading, they highlight China's concern about erratic movements in the yuan that could pose risks to financial stability. This sentiment is echoed by Japan and South Korea, both expressing concerns over currency depreciation and signaling potential interventions to address volatility.

Treasury Secretary Janet Yellen acknowledged these concerns during a trilateral meeting of finance chiefs, potentially providing room for Tokyo and Seoul to defend their currencies.

According to the PBOC report, China will prioritize market-driven yuan valuation, aiming for stability while ensuring efficient use of financial resources. This stance aligns with President Xi Jinping's views on financial development, as outlined in a recent compilation of his speeches on finance.

Despite the PBOC's firm stance, some analysts remain skeptical about the sustainability of its defense of the yuan. Logan Wright, director of China market research at Rhodium Group, believes that prolonged stability in the exchange rate may not be sustainable, anticipating eventual depreciation.

The central bank's actions reflect a cautious approach to currency management, balancing stability concerns with the need to adapt to market dynamics and maintain financial resilience.

The report concludes with acknowledgments of assistance from Jing Li, Yujing Liu, and Shuiyu Jing in compiling the information.

April 18, 2024 4:46 p.m. 8075

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