Recent depreciation of Chinese currency was caused solely by market situation, analysts say

Date: 12:36, 25-07-2018.

Beijing. Jul 25. Silkroadnews - China does not manipulate its currency to support its exports amid a trade war with the U.S., and the recent decline in the RMB rate was of purely market driven nature, People’s Daily writes.
China would not use the renminbi rate as a weapon to cope with the negative effects of trade tensions with the U.S., said Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences.
“Depreciation of the yuan might offset the influence of higher US tariffs, but it wouldn't do much good for China's economy. It might bring bad consequences like capital outflows. China wants the yuan to be stable and wouldn't want it to depreciate significantly,” the agency quoted Zhou saying.
His opinion is also shared by Cong Yi, professor of economics at the Tianjin University of Finance and Economics, who said that it was the U.S.., not the Chinese government, that has caused the depreciation of the yuan.
The trade tension has caused a deterioration in China’s international trade balance, which, in turn, led to capital outflows and depreciation pressure on the yuan, Zhou and Cong both said.
A CNBC report noted that the trade dispute between China and the U.S. has turned into a “currency war” between the two economies, with both currencies depreciating in recent days.
Last Friday, the base rate of the RMB against the U.S. dollar weakened 605 basis points to 6.7671 cents, as evidenced by data from the People's Bank of China.
On January 2, the first trading day this year, the RMB rate was 6.5079 against the U.S. dollar. And the U.S. dollar index fell 0.72 percent to 94.48 on Friday.
According to Cong, there is no reason for long-term depreciation of the renminbi, as China is making efforts to reduce dependence on exports and increasing dependence on domestic demand. “Besides, US companies are also increasing investment in China amid slumping demand in the US. That trend is irreversible,” the agency quoted him saying.

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