Yuan Starts Making Exports Cheaper

The Chinese currecy yuan (renminbi) was in fall for the last 3 years until the Chinese economy started to be hit by global crisis. The currency has been stable for the last 3 months, but as the global financial crisis deepens and further affects Chinese economy, the yuan also started to decline,say, making the exports cheaper. Here is the news from Xinhua :

Yuan falls on talk currency decline is to help exports
By XINHUA

CHINA’S currency, the yuan, fell by the daily limit against the United States dollar for a second day yesterday, its fourth straight daily decline.

The yuan finished at 6.8870 per US dollar on the over-the-counter market, having declined 0.5 percent against its central parity rate. The central parity rate, announced by the China Foreign Exchange Trading System, was 6.8527 yuan per US dollar yesterday, compared with 6.8505 yuan on Monday.

On Monday, the yuan also fell by the 0.5 percent daily limit on the over-the-counter market to end at 6.8848 to the US dollar. Monday’s move marked the yuan’s biggest weakening since China ended the peg to the US dollar in July 2005.

The yuan’s central parity rate is based on a weighted average of market makers’ price inquiries before the market opens on each business day. The rate is allowed to fluctuate within a band of 0.5 percent on either side of the mid-point.

Zhao Qingming, a senior analyst at China Construction Bank, said the yuan depreciation resulted directly from a stronger US dollar.

“In addition, China has announced many pro-active fiscal and monetary policies to stimulate the economy, which fuels market speculation that the yuan might depreciate against the US dollar to help increase exports,” he said.

Ou Minggang, director of the International Finance Research Center at the China Foreign Affairs University, attributed the yuan’s depreciation to recent interest-rate cuts in China.

Last week, the People’s Bank of China, the central bank, cut the benchmark one-year yuan loan rate to 5.58 percent from 6.66 percent and the one-year yuan deposit rate to 2.52 percent from 3.60 percent. The 108-basis-point cuts were the fourth since mid-September and the largest since the late 1990s.

Ou said the weaker yuan could help support China’s exports.

Monday’s unusual yuan move buoyed shares of Chinese textile firms yesterday, betting the weaker yuan could help textile exports.

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