China has changed its long-standing rhetoric on its yuan policy, signalling Beijing may alter its course on exchange rates this year under pressure from US Federal Reserve rate rises and US President Donald Trump‘s threats of a trade war.
For the first time in an annual government report, the central government included the requirement to ensure the stable global status of the yuan as one of its major tasks, dropping the line “keeping a stable yuan at a reasonable and balanced level” that has been including in report for the past three years.
“The renminbi exchange rate will be further liberalised, and the currency’s stable position in the global monetary system will be maintained,” according to the government work report read out by Premier Li Keqiang at the National People’s Congress on Sunday.
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The new wording may indicate that Beijing will be more tolerant of yuan exchange rate moves against the dollar and gradually reduce its intervention in the foreign exchange market this year.
The Chinese currency is losing its appeal for investors, even though it had obtained a nominal reserve currency status from the International Monetary Fund, thanks to the Chinese government’s tightened capital account controls and the prospects of weakening against the US dollar, analysts said.
“The capital controls will hurt the yuan’s status and reputation,” said Shen Jianguang, chief economist with Mizuho Securities Asia. “In the past two years, the status of the yuan as an international settlement and valuation currency, as well as the scale of the yuan’s fund pool offshore, have fallen.”