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A senior Chinese central banker has sought to reassure markets about Beijing’s commitment to exchange rate reform in the wake of a renewed slide in the yuan and worries authorities will be moving to a more interventionist stance to curb currency volatility. Fan Gang, a member of the People’s Bank of China monetary policy committee, told the official Securities Times that dollar fundamentals, Chinese macroeconomic conditions and changes in other currencies would be key factors affecting the value of the yuan.
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Fan emphasised that China should not take a backward step toward fixing the exchange rate. “China should not implement a fixed exchange rate again, nor peg to the dollar or even a basket of currencies,” he said.
“China has already taken a step forward and we should continue to move forward. We should not dream of returning to a fixed rate regime.”
The yuan is allowed to trade in a band of two percent above and below a midpoint rate set each trading day by the central bank. The government has pledged to move toward a market-based exchange rate.
Fan’s comments come in the wake of a slide in the yuan to six-year lows last week. Many economists have attributed the weakness in the yuan to dollar strengthening globally, but that hasn’t tempered depreciation fears amid a tenuous economic recovery.
The yuan has fallen about 1.6 percent against the dollar so far this month, and is on track for its worst month since August 2015 when the PBOC led a one-off sharp devaluation that spread turmoil in global markets.
Also on Monday, the Securities Times quoted former central bank advisor Yu Yongding as saying the yuan would face depreciation pressure in the short term.
“The yuan will eventually appreciate, but it is hard to predict the time,” Yu said.
China’s capital account is closed, but authorities have been struggling to stop the flow of money abroad.
Its latest move came at the weekend when China’s biggest bank card provider UnionPay said it would tighten regulations over how mainland customers can use its debit and credit cards to purchase Hong Kong insurance products, which have been used as a way to get cash across the border.
The government cannot keep the yuan stable and maintain ample foreign exchange reserves at the same time, Guan Tao, former head of international payments at the State Administration of Foreign Exchange, told the China Securities Journal.