Bloomberg News

China’s Yuan Slides Most in Four Months on Global Growth Concern

September 26, 2011

Sept. 26 (Bloomberg) -- China’s yuan dropped the most in four months as concern Europe’s debt crisis will worsen curbed demand for emerging-market assets.

Failure to combat the Greek-led turmoil threatens “cascading default, bank runs and catastrophic risk,” U.S. Treasury Secretary Timothy F. Geithner warned at a Sept. 24 meeting of the International Monetary Fund in Washington. Benchmark stock indexes slumped across Asia today, sending the MSCI Asia Pacific Index to its lowest close in 16 months.

The yuan dropped 0.18 percent to close at 6.4006 per dollar in Shanghai, extending last week’s 0.09 percent decline, according to the China Foreign Exchange Trade System. It touched 6.4049, the weakest level since Aug. 12. In Hong Kong’s offshore market, the currency strengthened 0.38 percent to 6.4875, after sliding 2.1 percent last week, Bloomberg data show.

“The onshore yuan was behind the curve compared with the offshore rate, despite the market having been in risk-off mode,” said Carlos Cheung, a foreign-exchange currency dealer at Bank of Communications Ltd. in Hong Kong. “Some companies sold the yuan because they are short of dollars.”

Twelve-month non-deliverable forwards on the yuan gained 0.06 percent to 6.4015 per dollar, almost matching the spot rate in Shanghai, according to data compiled by Bloomberg. The People Bank’s of China set its daily reference rate 0.16 percent stronger at 6.3735, the highest level since July 2005. The yuan is allowed to trade up to 0.5 percent on either side of the daily reference rate.

Currency Policy

The yuan is “highly relevant” to China’s international balance of payments, central bank Governor Zhou Xiaochuan said in Washington on Sept. 24, adding that a global economic slowdown wouldn’t affect its currency policy. The yuan may become fully convertible in five years, Li Daokui, an adviser to the People’s Bank of China, said at a forum in Washington.

China’s growth momentum will remain relatively strong, the central bank’s Zhou said in a speech posted on the monetary authority’s website yesterday. The government will maintain stable consumer prices to prevent major economic volatility, Zhou said at the IMF meeting.

Zhou said the general tone of the country’s fiscal and monetary policies won’t be changed as the overall trend in the economy hasn’t changed that much, China Business News reported today, citing comments made in an interview. China won’t pursue economic policies that may lead to a sharp slowdown, Zhou said, noting that the nation’s economic growth of 8 percent to 10 percent is helpful in supporting a global recovery.

China halted a three-year, 21 percent advance in the yuan in July 2008 to help exporters weather a global recession. The currency has strengthened 6.6 percent since the central bank allowed appreciation to resume in June 2010.

--Editors: James Regan, Andrew Janes

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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