Jul 06, 2018 (China Knowledge) - China's economy has a strong tolerance for Sino-US trade frictions and the country's economic fundamentals have showed that there is no possibility of a significant depreciation, the party secretary of the People's Bank of China (PBoC) and head of China Banking and Insurance Regulatory Commission (CBIRC), Guo Shuqing said, adding that the country's renminbi (RMB) is expected to strengthen in the future.
The Chinese currency has been under pressure in recent weeks as the dispute over trade and Chinese investment into U.S. companies heats up. It had its worst month on record in June, losing about 3.3 percent of its value against the US dollar.
A few days after the continuous decline, the RMB rose sharply earlier this week. After the PBoC governor Yi Gang said on Tuesday that there was a procyclical behavior in the foreign exchange market, the offshore RMB rose nearly a thousand points in two trading days, before it resumed its two-way stable movement.
The central parity rate of the renminbi against the US dollar was lowered again on Friday, dropping by 156 pips this time to 6.6336.
"As an emerging reserve currency that is gradually internationalized, the renminbi will generally tend to strengthen in the future. Over the past 30 years or so, those residents and enterprises, who does not view the renminbi as a strong currency, snapped up and held foreign exchange for a long time have suffered great losses in the end. In recent years, some international speculators have tried to make huge profits by shorting RMB. Facts have proven that they have misjudged the situation seriously," Guo said.
In a statement published on the website of CBIRC, Guo emphasized the importance of establishing confidence and reasonably guiding expectations while giving full play to driving force of reform and opening up. He added that the financial sector will continue to deepen reform, expand its opening up, improve the corporate governance structure, optimize the institutional system, and continuously improve the service level of the real economy.
In a phone interview with China Knowledge, Shi Jianxun, director of the Institute of finance and economics of Tongji University said that "the strength of RMB will depend on whether the trade war is easing or not and whether US economy will remain weak. Because if there is a global trade war, the rate hike (for the U.S.) will slow down, which will affect the RMB strength."
He added that the government will intervene in the foreign exchange market if it affects financial stability, like 18 months ago.
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