A trend has emerged where for two consecutive days the exchange rate of the renminbi against the dollar has dropped by the maximum amount permitted. Experts in the industry believe that the renminbi depreciation is a normal event, and although there was recently speculation that the renminbi would devalue, there is still no evidence that the renminbi has already made a u-turn onto the path to devaluation.
Pei Changhong, director of the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences said, since July of this year, due to the effects of the international financial crisis, there have been changes in the major currency exchange rates of the western countries, with the Euro depreciating and the US dollar appreciating. The exchange rate of the renminbi is determined with reference to a basket of currencies, therefore a readjustment of the renminbi against the US dollar is completely normal. Moreover since the exchange rate of the renminbi against the US dollar has already appreciated by 20%, the depreciation is quite normal.
Devaluation of the renminbi is helpful to Chinese exports, but according to the China International Capital Corporation's research report released yesterday, the renminbi will not depreciate considerably. Firstly, China's trade surplus still remains at a high level, and substantial devaluation of the renminbi will encourage protectionist sentiments amongst China's trading partners. Secondly, large devaluation of the renminbi may trigger an outflow of capital.
By People's Daily Online
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