The Chinese yuan has depreciated to its lowest level in six months. Despite some worries, China’s foreign exchange regulators said Wednesday the fall could help China fight speculative capital known as hot money.
The yuan dollar rate has slipped nearly 1.6 percent since a mid-January high of 6.04. While there are worries about whether this reflects China’s economic fundamentals, the State Administration of Foreign Exchange says the decline has a positive effect - beating hot money.
The yuan had been appreciating for more than a year before the depreciation began. China’s trade surplus expanded to 29 billion U.S. dollars in January while its foreign exchange settlement surplus hit 73 billion U.S. dollar. Both show increasing capital inflows from overseas.
With the depreciation of the yuan, though, speculative capital is losing out.
"If we allow the exchange rate to be volatile, the space for non-risk arbitrage could be narrowed down. It will reduce the attraction to hot money, and even depress the inflow of hot money." Zhao Qingming, Chief Macro-Economy Researcher, Institution of Financial Derivatives of China said.
The forex regulator says the two-way swings in the yuan’s value will be normal in the future. The administration suggested that investors should adapt to the change.
Source: CCTV
