As reported by Reuters on Monday, February 7, Guan Tao, chief global economist at BOC International, said that the Chinese government could take additional measures to keep the yuan steady.
Tao expected that the potential measures could opt for deviation from economic fundamentals for a short period (SAFE) in order to put downward pressure on the currency.
For example, to keep the yuan under control, policymakers might try to improve the yuan’s flexibility, widen capital outflows, or limit capital inflows.
In an article published in the Shanghai Securities News on Monday, Guan Tao said the downward pressure on the yuan is also happening as the dollar index is growing, the yield margin between the US and China is closing, and the growth gap between the two economies is narrowing.
Guan Tao stated that the Chinese currency is already losing some of its traction, reiterating the reduction in trading volumes in the interbank foreign exchange market.
On January 26, China’s yuan touched a near four-year high against the dollar. The onshore yuan finished the domestic trading day at 6.3219 per dollar in the spot market, up 38 pips from the previous late-night close. It was also the strongest closing since April 25, 2018.
That day, the CFSC NYI index, which measures the yuan’s value against a basket of currencies, was nearing its highest level since August 11, 2015, at 103.5.
This was because, before the market opening, China’s central bank raised the official yuan midpoint against the dollar to the highest level in nearly four years, at 6.3246 yuan per dollar, which effectively gave the CFSC NYI index a major push.
Reuters noted that it was the strongest adjustment since April 25, 2018.
China has already taken some steps to harness the yuan’s rapid rise, such as directing financial institutions to retain more forex exchange in reserve.