Yi Gang, the governor of the People's Bank of China. Photo: AFP/Imaginechina
Yi Gang, the governor of the People's Bank of China. Photo: AFP/Imaginechina

The yuan is showing a reasonable level of strength and stability when viewed against a basket of currencies, says Yi Gang, a deputy governor of the People’s Bank of China.

In an interview with the Xinhua news agency on Sunday, he said this was more reflective than just focusing on the yuan’s recent weakening against the US dollar, which is influenced by factors such as the election of Donald Trump as US president, expectations of the US Federal Reserve increasing interest rates, uncertainty over Brexit and the free float of the Egyptian pound.

Yi said these events had surprised every country in the world, driving up the dollar index and all three major US stock indexes, leading to the widespread depreciation of global currencies.

Compared to some other non-US dollar currencies, the extent of the devaluation of the yuan since October – 3.5% against the US dollar – is relatively small, he said.

In the developed countries, the Japanese yen, the euro, and the Swiss franc have weakened 10.5%, 5.8% and 4.2% against the US dollar respectively since October. While in the developing countries, the Malaysian ringgit, the South Korean won and the Mexican peso have depreciated 7.2%, 6.5% and 6.1% respectively against the US dollar.

Thus, the yuan’s slight depreciation against the US dollar had resulted in its considerable appreciation against other currencies such as the yen, on which it has gained 7.5% since October.

Over the longer historical context, the yuan has already displayed a stable, upward trajectory – as can be seen in several key RMB trade-weighted indices. In the past five years, the CFETS RMB Index has increased 10.9%, the BIS Currency Basket RMB Index has expanded 11% and the the SDR Currency Basket RMB Index has gained 4.4%.

Yi emphasized that to view the yuan against a basket of currencies can also better avoid overreaction and subsequent market correction to the appreciation of the US dollar, which causes market volatility.

China’s economy has maintained steady growth and the People’s Bank of China has continued its prudent monetary policy. While the US’s economy is in a robust recovery with a tightening monetary policy, the currency movements of the two countries could hardly stay in line, Yi said.

He added that China has sufficient foreign reserves to repay all its foreign debts and cover six months of imports, while the trade surplus of around US$500 billion and foreign direct invest of US$120 billion can cover the domestic demand for foreign exchange.