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Threshold of 7 yuan to dollar not crucial

Xin Zhiming
Updated: Dec 30,2016 7:24 AM     China Daily

The yuan’s so-called psychological threshold of 7 to the US dollar is not so important for the Chinese economy, analysts said on Dec 29, after the central bank rejected an “irresponsible” media report that the yuan had fallen below that level in the trading on Dec 28.

The yuan traded between 6.95 and 6.9666 per dollar on Dec 28, the People’s Bank of China, the central bank, said on its micro blog. “But some irresponsible media reports said that the onshore rate of the yuan broke the psychological threshold of 7.0,” the central bank said.

“Technically, the media report that the yuan had broken that level is wrong,” said Xiao Lisheng, an economist at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences. “The report sent a misleading signal to investors and the public in general that the yuan was depreciating at a faster pace.”

The 7 yuan mark is not so crucial and investors should not worry about the psychological line, said Liang Haiming, chief economist of China Silk Road iValley Research Institute.

While it depreciates versus the dollar, the yuan has risen against other currencies, a divergence that will exist for some time, said Liang. “The falling yuan is caused not by major changes in China’s economic fundamentals, but by the strong appreciation of the dollar.”

The central parity rate of the yuan, the benchmark reference rate set by the central bank, weakened by 2 basis points, or 0.02 percent, to 6.9497 against the US dollar on Dec 29.

The same day, China adjusted the weighting of the China Foreign Exchange Trade System currency basket, which is used to measure the level of the yuan against a number of major currencies, and included 11 new currencies.

After the adjustment, the weighting of the dollar fell to 22.4 percent from 26.4 percent. The euro dropped to 16.3 from 21.4 percent, and the Japanese yen to 11.5 from 14.7 percent.

The adjustment increases the representative nature of the basket, the China Foreign Exchange Trade Center said.

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