Economists linked to the Chinese government say that authorities will not be looking to devalue the yuan following Japan’s decision to employ negative interest rates.
Following the surprise move by the Bank of Japan, Chinese state media were suspiciously quiet about what Beijing’s response would be, sparking speculation that the government may devalue the yuan to maintain export competitiveness.
AFR reports, however, that the Chinese government would not be baited into a devaluation. “China will definitely not join in this currency war,” said Xu Hongchai, an economist linked to China’s National Development and Reform Commission. “We want to maintain a stable [currency] policy and we have confidence in the Chinese economy.”
Of course, Beijing’s decision is likely influenced in no small part by the record levels of money being pulled from the country by investors. Were Beijing to embark on further devaluation of the yuan, it’s likely that even more capital would flee China.
Capital Economics, an independent economic research firm, forecasts that the yuan is already set to hit 6.8 against the dollar by the end of 2016 compared with its current value of around 6.57.
“I don’t think you are seeing Asian countries fighting to weaken their currencies against each other; it’s more a passive devaluation driven by the strength of the US dollar,” said economist Julian Evans-Pritchard.
China’s foreign exchange reserves fell by more than $US500 billion in 2015 to $US3.3 trillion, the first annual drop since 1992.