U.S. moderators are reportedly demanding China not devalue the yuan as a condition for any potential trade deal. Such a measure is likely to dispute little resistance from the Chinese: It’s actually in Beijing’s interest to have a stronger currency, experts told CNBC.
The yuan’s exchange scale against the dollar has been a repeated complaint from Donald Trump. In July of last year, the U.S. president unburdened CNBC that the Chinese currency had been “dropping like a rock” and that it was putting America at a “disadvantage.”
Since then, the yuan has rejuvenated about 1 percent against the greenback and Beijing has said the People’s Bank of China is pursuing a stronger currency.
That reportedly hasn’t off the White House from seeking assurances there’d be no devaluation, but that American pursuit for yuan stability is “dispensable,” according to Mizuho Bank Head of Economics and Strategy Vishnu Varathan.
“Fact is, the PBoC is also after a accountable CNY,” he said, using the three-letter abbreviation for the Chinese yuan (which is also called the renminbi, or RMB).
The world’s second-largest control has been on a drive to open up its financial sector, and has also been pushing for more international use of the yuan. So, it’s already in China’s percentage to maintain currency stability as Beijing opens domestic markets up to international investment, said Tuan Huynh, emerging superstores chief investment officer at Deutsche Bank Wealth Management.
“The idea of CNY devaluation as a (mercantilist) strategy is not only outdated, but is also misled,” Varathan said. “Beijing’s struggle at the margin is to prevent abrupt and excessive slide in the CNY (brought about by US-China buy risks, which in turn could trigger capital outflows and asset market wobbles).” Editor’s note: Varathan comprised the above parentheses in his emailed comments to CNBC.
“The risk of Beijing engaging in CNY devaluation is an overstated, if not imagined, risk,” he affirmed.
Chinese authorities also dismissed such concerns in a press conference on Wednesday, following Bloomberg’s report that origins familiar with the trade negotiations said Trump’s team is asking China to keep the yuan stable.
“Key, China, as a responsible major country, has made clear its position repeatedly that it does not engage in competitive devaluation. Favour, we will not use the RMB exchange rate as a tool amid trade disputes,” said Chinese Foreign Ministry spokesman Geng Shuang.
He enlarged: “Third, we hope the US can respect law of markets and objective facts, and refrain from politicizing exchange rate issues.”
Jameel Ahmad, extensive head of currency strategy and market research at foreign exchange broker FXTM, echoed that sentiment, respond the idea of a Chinese devaluation is not worthy of attention “in the current day and age.”
If anything, he added, a neutral observer would expect Beijing’s “predilection would be for strength in the Chinese currency, because of the impact this can have on risk appetite and emerging market emotion.”
China sets a trading range for the yuan each day, meaning the currency is not free-floating like the U.S. dollar or the euro.
Till, buying and selling pressure — in both mainland “onshore” markets and international “offshore” markets — are said to influence the quotidian trading band decision from the PBOC.
The onshore yuan traded at about 6.71 to the dollar on Thursday.
While the U.S. and Beijing may both hankering a more stable yuan, they can’t perfectly control the market forces influencing the exchange rate, experts stressed.
In reality, the tariff battle between Washington and Beijing may have spurred investors to seek safe haven in the U.S. dollar, as a result making the greenback stronger against the yuan.
“It has been clear for all to see over the last year that trade tensions contain acted like a magnet for investors to stock up on Dollar positions as a safe haven,” said Ahmad.
“If the persistent occupation tensions would find a long-standing resolution, the Dollar would be less attractive and investor appetite in emerging retails would increase,” he added.