China aims to boost spending to prop up the economy. Image: iStock

The market is beginning to adapt better to the fluctuation of the yuan, which is reassuring, but China’s currency is still facing depreciation pressure, said Guan Tao, former director of the Balance of Payments Bureau of the State Administration of Foreign Exchange, reported.

In the first 11 months of last year, the yuan fell by 6% overall against the greenback. However, companies and individuals have continued to sell foreign currencies, reducing deposits, unlike the situation in 2015 and 2016 when they tended to stockpile them out of fear, Guan pointed out.

For example, when the yuan depreciated by 5.8%, individuals and enterprises reduced domestic foreign exchange deposits by US$3.9 billion and US$61.8 billion, respectively.

“This is positive progress,” said Guan, meaning that investors are becoming more comfortable with the fluctuation of the yuan, which is conducive to the liberalization of China’s foreign exchange market.

“To liberalize the market, we must let the exchange rate leverage play a normal role, which means allow investors to buy low and sell high,” Guan added.

Leave a comment