Markets Test China’s to Ease Grip on Yuan
Currency guided lower again Thursday as China’s central bank struggles to manage market
China guided its currency lower for a third day Thursday after briefly intervening to prop it up the day before, showing how the leadership is struggling to manage the market in largely uncharted territory for Beijing.
The central bank engineered what looked like a win-win when it ceded more control of its currency to markets earlier this week, in a step toward liberalization that also gives Chinese exporters an edge. But now it also has to manage market expectations to keep the yuan from entering a free fall—a challenge for central banks world-wide but one that China has avoided by tightly controlling the value of its currency.
China intervened in the currency market Wednesday in the final moments of trading, people familiar with the matter said, after the yuan weakened nearly 2%—the daily limit—to its lowest level against the dollar in four years. On Thursday, the central bank set the yuan’s fixing only marginally lower, a
sign it wants to let the yuan depreciate but only in a measured way.
Meeting with reporters in Beijing Thursday for a rare briefing, central-bank officials stuck to their message, saying that the exchange rate will become more market driven but insisting that the central bank has the ability to keep the market in check with China’s “ample” foreign-exchange reserves.
But a controlled descent may prove elusive. “It’s going to be a period of volatility for the next few months before [the yuan] finds its equilibrium level,” said Alexandra Edstein, senior portfolio manager at The Cambridge Strategy’s Asian currency fund.
The central bank engineered what looked like a win-win when it ceded more control of its currency to markets earlier this week, in a step toward liberalization that also gives Chinese exporters an edge. But now it also has to manage market expectations to keep the yuan from entering a free fall—a challenge for central banks world-wide but one that China has avoided by tightly controlling the value of its currency.
China intervened in the currency market Wednesday in the final moments of trading, people familiar with the matter said, after the yuan weakened nearly 2%—the daily limit—to its lowest level against the dollar in four years. On Thursday, the central bank set the yuan’s fixing only marginally lower, a
sign it wants to let the yuan depreciate but only in a measured way.
Meeting with reporters in Beijing Thursday for a rare briefing, central-bank officials stuck to their message, saying that the exchange rate will become more market driven but insisting that the central bank has the ability to keep the market in check with China’s “ample” foreign-exchange reserves.
But a controlled descent may prove elusive. “It’s going to be a period of volatility for the next few months before [the yuan] finds its equilibrium level,” said Alexandra Edstein, senior portfolio manager at The Cambridge Strategy’s Asian currency fund.
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