RMB exchange rate returns to normal: economist

Beijing, Sep 13 (IANS) The yuan’s exchange rate will return to a reasonable and normal track, given there are no grounds for continued depreciation in the long run.

Ding Zhijie, a professor at the University of International Business and Economics, has echoed Chinese Premier Li Keqiang as saying China’s recent adjustment to the RMB’s (yuan) exchange rate mechanism was aimed at giving market forces more power, and the depreciation is temporary, reported Xinhua news agency.

The remarks were carried in an article on Friday by the China Business News.

China’s ultimate goal in overhauling the mechanism was to give market supply and demand a greater role in the rate formattion system, Ding said.

The modest weakening of the yuan was a result of the release of devaluation pressure that was mostly due to external factors, especially the rallying US dollar.

Although the yuan is depreciating in the short term, prospects for a robust Chinese currency are still rosy in the longer term, as China’s economic growth continues to gain momentum, Ding said.

On August 11, the central bank decided to let the market play a greater role in forming the yuan’s central parity rate against the US dollar.

The RMB weakened about three percent in the following two days before stabilising on increased assurance from the central bank.

The RMB depreciation has been accompanied by criticism that China is causing a currency war and attempting to boost exports through depreciation of the yuan.

China is unwilling to see a currency war, as it would do no good for the country, Premier Li said.

Using yuan depreciation to boost exports also conflicts with the Chinese economy’s ongoing structural reform, Li said, adding China has ample foreign exchange reserves and sound economic growth, leaving no basis for future depreciation of the currency.

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