The parity of the Chinese yuan against the US dollar reached 6.2882 on Wednesday, up 190 basis points from previous trading and hitting a new high following extensive exchange rate reform in August 2015, according to Securities Daily.
Zong Liang, chief researcher at the Bank of China, said there has indeed been a massive influx of hot money across the board, as the yuan’s exchange rate has risen appreciably since the beginning of this year.
He Qing, special researcher at the International Monetary Institute, agrees with this point. He believes the main reason for the rise is greater uncertainty in US stocks. Also, the market shows growing ambivalence about possible US interest rate hikes.
As a result, funds will look for other relatively safe investment opportunities and possibly flow to emerging markets, including China.
He further points out that the relatively steady and sustained appreciation of the yuan will attract foreign capital to buy yuan assets.
On the other hand, it will also encourage domestic enterprises to conduct overseas mergers and acquisitions to a greater degree. Both of the latter will help the internationalization of the yuan.