The People’s Bank of China recently launched a move to increase the foreign currency deposit reserve ratio to depress the exchange rate of the renminbi, because the renminbi is trending too strong!
According to a report by CNN on December 10, the original headline read: “The RMB is going through a year that is even better than the US dollar.” CNN reported that although China’s economy is slowing down, its currency is rarely as strong as it is now. Even as the Fed prepares to raise interest rates, the yuan’s performance this year still dwarfs the U.S. dollar. A tracking index shows that the value of the renminbi has soared by more than 8% this year. Entering December, the appreciation of the renminbi is even more “worldly.”
Experts say that despite the relatively weak economic growth, China’s rapidly growing exports and hot money chasing higher returns on Chinese government bonds are behind the surge in the value of the renminbi. Even if China’s economy struggles to cope with inflation, the real estate industry has slowed sharply, and regulatory rectification activities are still going on, the strong performance of the renminbi will continue until 2022.
This trend is good. The stronger the renminbi, the more likely it is for central banks around the world to maintain large reserves of renminbi, thereby increasing the use of the renminbi on a global scale. This will also help make imports cheaper and curb high inflation. China is buying large quantities of commodities priced in dollars, and the appreciation of the renminbi will make these imported commodities relatively cheaper. However, if the RMB appreciates too fast, it may reduce China’s export competitiveness.