PBOC Vice President Yi Gang; Image via World Economic Forum
PBOC Officials In Support Of CNY
Despite recent suggestions that the Chinese government will allow a more accelerated pace of CNY depreciation, most notably from Yu Yongding, recent statements from the PBoC instead continue to reaffirm a preference for a managed and gradual depreciation. In a newspaper interview published this week, PBOC Vice President Yi Gang highlighted CNY’s relative appreciation against most currencies since around the start of October despite its weakness against the US Dollar. Yi Gang emphasized the need to assess CNY against a broad basket and the USCNY cross rate will continue to be influenced by the divergence in the economic cycle and policy between the two countries.
Over the weekend the Wall Street Journal reported that the Chinese government is considering stricter controls on cross-border lending by Chinese banks and Chinese companies direct overseas investment. These reports followed an article published on the front page of the PBOC’s Financial Times last week which was titled “CNY Exchange Rate Movement Is A Natural Reaction To International FX Market Changes.†These two publications can reasonably be viewed as efforts by policymakers to protect against market stress and push back against the building fear that China might allow CNY depreciation to accelerate in the run-up to Trump’s inauguration in January next year.
PBOC Publicity Campaign In Swing
Indeed, it appears that the PBOC has been engaged in something of a publicity campaign over the past several days in support of the CNY. Speaking with Xinhua, PBOC Vice Governor Yi Gang noted that the CNY exchange rate demonstrates the characteristics of a strong currency. Whilst CNY has weakened against USD it has done so less than many developed currencies such as EUR, CHF, JPY and emerging currencies such as MYR, KRW, and MXN. Yi Gang argued that the accelerated increase in USD/CNY of late has been driven by external factors such as expectations for accelerated US growth in the wake of Trump’s election and the consequent higher outlook for Fed rates. Yi Gang also added that Chinese FX reserves are abundant and that the country’s economic recovery and institutional reforms will drive a return of capital flows.
