The Chinese government could take further measures if needed to keep the yuan stable, potentially putting downward pressure on the currency, a former foreign exchange regulator said.
Policymakers could increase the yuan’s flexibility, expand capital outflows, or control capital inflows to rein in the yuan, which could deviate from economic fundamentals in the short term, wrote Guan Tao, global chief economist at BOC International and a former official at the State Administration of Foreign Exchange (SAFE).
The yuan also faces downward pressure from several market factors, including further strengthening of the dollar index, the shrinking spread between US and Chinese yields, and the narrowing difference in the growth between the two economies, Guan wrote in an article published in the Shanghai Securities News on Monday.
Guan, who previously headed SAFE’s balance of payments department, said that the yuan is already losing some momentum, citing shrinking trading volumes in the interbank forex market.
China’s yuan hit a near four-year-high against the dollar on January 26 and an index tracking the yuan’s value against a basket of currencies is flirting with its highest level since late 2015.
China has already taken some measures, including directing financial institutions to hold more foreign exchange in reserve, to slow down the yuan’s rapid appreciation.
• Reuters with additional editing by Jim Pollard
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