Despite Beijing’s Efforts, the Yuan Continues to Plummet

Despite Beijing’s Efforts, the Yuan Continues to Plummet

Attempts by Beijing to stem or reverse the fall of the yuan appear increasingly futile as the currency continues its depreciation against the dollar, reversing gains it had made in trading sessions on January 4 and 5.

The yuan had managed to increase its position against the U.S. dollar as Beijing announced new measures to prevent continued outflows of the currency from the nation last week, in an increasingly desperate effort to prevent further reductions in the value of the currency.

Pushing the dollar from 6.96356 yuan on January 4 to 6.79429 yuan on January 5, the reduction in the value of the Chinese currency, as experienced throughout much of 2016, appeared to be easing, and perhaps entering a state of steady rise against the U.S. currency, potentially regaining some of the value lost over the previous year, as enhanced regulation issued by China’s central bank appeared to be instilling the beginning of a yuan rise.

However, China appears increasingly unable to prevent the yuan from continued depreciation, as foreign-exchange reserves continue their corresponding trend of steady decline.

Beijing had implemented enhanced systems of reducing the currency outflow from the country, most notable of which are increased controls on outbound investments made by Chinese companies, as well as a considerable overall of regulations concerning the conversation of yuan into foreign currencies. In a mechanism orientated about achieving more favourable rates, some Chinese investors borrow yuan, prior to swapping them for dollars and subsequently converting them back into yuan at a more agreeable rate.

Such practises had contributed to a continued decline in the value of the yuan, however, a surge in the dollar subsequent to the election of Donald Trump had aided the rise of the U.S. currency against the yuan.

As Beijing considers a new round of regulation designed to prevent further reductions in the value of the currency, the prospect of a yuan increase is becoming an increasingly rare opinion amongst investors; who see a Trump economic plan of significant stimulus and a protectionist stance on U.S. manufacturing as contributors to a stronger dollar.

 

Chart from: https://www.dailyfx.com/usd-cnh

Showing daily fluctuations in the value of the U.S. dollar against the Chinese yuan. The significant drop in value apparent at the recent end of the graph represents the announcement of enhanced currency regulation by China.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s