China announced exchange rate reforms last year to make the Yuan’s value more market-driven. To make it even more responsive, the People’s Bank of China announced Tuesday that it will now peg the yuan’s value to a variety of market forces.
These include the previous day’s inter-bank closing rate, market supply and demand and price movements in other major currencies besides the U.S. dollar.
International Channel of Shanghai’s Wang Lihuan reports:
People's Bank of China pegs RMB to various market forcesChina announced exchange rate reforms last year to make the yuan's value more market-driven. To make it even more responsive, the People's Bank of China announced Tuesday that it will now peg the yuan's value to a variety of market forces, including the previous day's inter-bank closing rate, market supply and demand, and price movements in other major currencies besides the U.S. dollar.
When the PBOC did this, the yuan fell. The central bank then lowered the exchange rate, again, but based on market movements Tuesday.
From China’s point of view, the Yuan is now closer to its real value. Many foreign analysts interpreted the devaluation as a way to make Chinese goods cheaper and more competitive abroad. That will happen, but China sees these adjustments as part of its long-term goal to persuade the IMF to add the Yuan to its basket of reserve currencies.
Source: Wind Information Co., Ltd.
China wants its currency to have credibility commensurate with its $17 trillion economy, and the global clout that goes with it. Becoming an IMF global currency will help make that happen.
Factory output rose six percent year-on-year in July, short of expectations, and down from a 6.8 percent growth in June. Retail sales, a key indicator of consumer spending, also missed expectations. The data came after a hefty drop in exports in July, which clearly weighed on Chinese manufacturers last month.
Economists say the results add to an overall negative outlook for China’s economy and underscores a possible need for Beijing to prop up the economy even further. Economists say Beijing’s next step may be allowing the Yuan’s value to fluctuate even more than now, and to cut commercial bank’s reserve requirements further to offset the impact of capital flowing out of the country.
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