The Chinese currency is likely to see more two-way volatility next year, but may gain value over the medium and long term, making it a good investment tool, Taipei-based Standard Chartered Bank chief economist Tony Phoo (符銘財) said on Thursday at a forum.
Phoo’s remarks came after the British banking group’s Renminbi Globalization Index (RGI) reached 1,949 in August, up 1.4 percent from the previous month, supported by the inclusion of Seoul and Paris as two new yuan-trading centers. Without the inclusions, August was slow, with the first month-on-month contraction since October 2012 amid concern over China’s economic prospects.
Phoo attributed the yuan’s depreciation earlier this year to interventions by China’s central bank, the People’s Bank of China, to rein in carry trade that dubiously inflated exports between Hong Kong and China.
Carry trade is bearable if it takes place under financial account, but unhealthy if it distorts a country’s current account or trade-related picture, Phoo said, adding that Chinese authorities have decided to step in and correct the distortion, warding off the speculative yuan inflows, or the so-called hot money flows, from piling up in China.
The yuan remains on the internationalization track and will therefore reflect market expectations of the currency’s performance, in line with China’s GDP growth, Phoo said.
The Chinese economy may continue to expand, but the pace will be slow due to a higher base and a larger scale, he said.
As for the US, its economic recovery has panned out faster than expected, with the job market recovering to the state before the global financial crisis in 2008, Phoo said.
The US’ economic improvement bodes well for the greenback, which may pick up further ahead, but may yield limited returns, as the US Federal Reserve is unlikely to end the low interest rate environment any time soon or in a drastic manner, he said.
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