China yuan's trade-weighted value falls to near two-year low
SHANGHAI: The Chinese yuan's value against its major trading partners fell close to a two-year low on Friday, reflecting the central bank's efforts to keep it steady versus the US dollar even as other currencies rise sharply.
WHY IT'S IMPORTANT
The People's Bank of China (PBOC) has been carefully managing its currency, allowing only marginal appreciation against the dollar even as other major and Asian currencies rally against a weakening US currency.
The policy, done through keeping the daily official yuan midpoint guidance steady, is expected to protect exporters during an ongoing trade war by offsetting tariffs with better currency conversion rates for their revenues.
A steadier yuan will also ensure there is no chaotic rush by corporates and households to sell their nearly US$1 trillion in foreign exchange deposits.
While Beijing has said it does not deliberately seek a weaker currency, the currency's passive decline comes at a time of heightened Sino-US tensions for an economy struggling with deflationary pressures and weak domestic demand.
BY THE NUMBERS
The CFETS yuan index, a gauge that measures the yuan's weighted value versus 25 currencies of trading partners, fell to 95.58 and is down 5.8 per cent year-to-date, according to Reuters calculations based on official data.
The yuan has, however, strengthened 1.6 per cent versus the dollar during the same period.
The official yuan midpoint has barely changed and is up about 0.05 per cent this year.
KEY QUOTES
Goldman Sachs estimated that a 10 per cent yuan depreciation in trade-weighted terms could increase goods exports by 5 per cent with a one-quarter lag, equivalent to a an increase of 75-basis-point GDP growth impulse.
"A greater than 5 per cent decline in CFETS within five months may be too fast and a further dip below 95 could fuel concerns or even some hostility from other Asian trading partners," Barclays analysts said in a note.
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