Yuan’s Depreciation Trade Impact Downplayed by China

Yuan's Depreciation Trade Impact Downplayed by ChinaThe Ministry of Commerce defended China’s decision to overhaul it exchange rate formation mechanism in which experts say a move that seen a significant drop in the yuan’s central parity rate against the US dollar. There were also concerns that the international market over the connection between the yuan’s deprecation and the country’s efforts in boosting exports. But the Ministry of Commerce stated that the drop of 4.6 percent in the three days after the adjustment was normal and will only have limited impact on the foreign trade.

Last year there’s been a significant discrepancy between the yuan central parity rate and the spot-trading rate. Based on the new quotation regime of the central parity has helped narrow the gap and will allow the market to have a bigger role in determining the yuan’s exchange rate. Last August 11 the central bank ordered that the daily central parity quotes should be reported to the Chine Foreign Exchange Trade System minutes before the market opens and must be based on the closing rate of the inter bank foreign exchange market on the previous day, the supply and demand and price movements of other major currencies.

After dropping 4.6 percent in the next three days, the yuan’s central partiy against the dollar has been stabilized. Based on the global value chain, there will be a downstream and upstream industrial division and international trade in the single industry, which is common. By boosting the effect on exports coming from currency depreciation is shared by various economies and is weakened. The impact of a one off rate adjustment on Chinese exports is limited since half of the exports are accounted by processing trade wherein a product’s raw material are imported to China and the finished products is re-exported after assembly.

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