Yuan weaker on Thursday after China’s central bank stops intervention
DBS estimates People’s Bank of China has spent US$661 billion to safeguard currency in past 18 months
Offshore yuan weakened again on Thursday morning after the People’s Bank of China stopped its aggressive intervention in the market on Wednesday,
At 10am, offshore yuan (CNH) was trading at 6.5951, weaker by 0.46 per cent from Wednesday.
A DBS report said the PBOC’s intervention had been an expensive exercise, estimating the central bank had spent US$661 billion from July 2014 to the end of last year.
“In all, the authorities have spent US$661 billion – 6.4 per cent of 2014 GDP – pushing and pulling the RMB this way and that,” the report said. “It could have spent that money restructuring a few banks or steel mills or state governments instead.”
The report said Beijing wanted to display “leadership” in the run-up to the International Monetary Fund’s decision to include the yuan in its Special Drawing Rights (SDR), which had led the yuan, also known as the renminbi (RMB), to keep pace with the US dollar last year.
“Now China wants to go home again and it can’t. After the RMB was included in the SDR, authorities announced they would pursue the basket strategy they should have pursued all along,” the DBS report said. “Markets interpreted the divorce with the dollar as an official wish for a weaker currency and wasted no time in granting it.
“All of which forced the authorities, who spent US$341 billion between July 2014 and August 2015 pushing the RMB north, to spend almost that much again (US$321 billion) trying to prevent it from falling too rapidly back to earth.”
