Date
6 December 2016
The RMB's recent volatility was due to unexpected global events, including the US presidential election result, says Yi Gang. Photo: Bloomberg
The RMB's recent volatility was due to unexpected global events, including the US presidential election result, says Yi Gang. Photo: Bloomberg

RMB will stabilize, capital flows to reverse: PBoC deputy chief

China’s economic conditions remain supportive to the renminbi, a central bank official said on Sunday, adding that the unit will stabilize after its recent volatility against the US dollar.

According to Yi Gang, deputy governor of the People’s Bank of China (PBoC), China’s “international balance of payments are basically stable, the merchandise trade surplus remains relatively large, and the yuan has the conditions to remain basically stable within a reasonable range in the future.”

Reuters quoted Yi as saying on state TV that the RMB showed characteristics of a strong currency as it fell less than other currencies against the dollar in recent weeks and rose versus other units in October.

The Chinese unit’s volatility had been due mainly to unexpected events including Donald Trump’s victory in the US presidential election, a sudden increase in expectations that the Fed will raise interest rates, and the Brexit vote in June, the central banker said.

The comments came after the RMB’s decline in value accelerated since Trump’s surprise win, plumping 8-1/2 year lows against the greenback last week.

“The movement of the US dollar going forward is uncertain, and we can’t rule out the possibility that changing market expectations will cause some decline in the dollar,” Yi said in remarks carried by state media.

The yuan has fallen more than 6 percent versus the dollar this year, including about 2 percent since Trump was elected, but has been relatively stable against a basket of currencies.

China’s foreign currency reserves have fallen to their lowest since March 2011 with the PBOC widely believed to have sold US dollars to cushion the currency’s decline.

Yi predicted that capital outflows seen after the August 2015 surprise devaluation of the RMB will start to reverse, and added that China’s foreign currency reserves are sufficient.

“As China’s economy recovers and institutional reform improves the business environment, the money that has left will come back,” he said.

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