China Comfortable With Yuan Rises as Economy Recovers

Sources told Reuters that policymakers in China are comfortable with the yuan’s rise to its highest level in two and a half years, at a time when the recovery of the world’s second-largest economy accelerates and the central bank gives the market more freedom in determining the currency’s value.

But sources involved in internal policy discussions told Reuters the central bank may act if further increases in the tightly managed currency, especially if they are rapid.

In light of broad expectations that the yuan will gain again and the dollar will decline further for a long time, the People’s Bank of China (Central Bank) acceptance of the currency’s rise contradicts recent market speculation that the bank may take steps to stabilize the high yuan.

The yuan, which closed at 6.5302 to the dollar on Friday, has gained about 6.6% against the US currency since the beginning of this year, but that is largely explained by the dollar’s depreciation of nearly 6% against a basket of currencies.

The yuan is on track for its biggest annual gain since rising 6.8% in 2017.

Some policy advisers believe the yuan may rise to 6.4 per dollar next year, up another 2%. The sources said the authorities may take steps to curb a rapid rise if Chinese exports are affected.

The People’s Bank of China has taken some technical steps that analysts interpret as a desire to allow some weakness in the yuan but not aimed at effectively devaluing the currency.

Sources said that the relatively tepid approach to the yuan’s appreciation may indicate efforts by the People’s Bank to give market forces a greater role, as part of longer-term reforms to strengthen the yuan’s position as a global currency.