Rani Jarkas: No Basis for Sustained Yuan Depreciation

After six months of silence, People’s Bank of China Governor Zhou Xiaochuan has spoken publicly twice in February, reiterating his view that major depreciation of the yuan is unnecessary for the foreseeable future. He condemned “speculators” for targeting the RMB, adding that “China will not let market sentiment be dominated by these speculative forces”.

During the CPPCC press conference on Sunday, People’s Bank of China Deputy Governor Yi Gang also stressed that “The currency will remain stable. There is no basis for its continuing devaluation.”

Meanwhile, Premier Li Keqiang will probably use his platform at the on-going National People’s Congress to drive home to the point that the government will promote stability against a newly-unveiled basket of major currencies. China will probably refrain from announcing any detailed changes to the country’s yuan policy this year to avoid spurring further volatility.

The confidence in Yuan’s stability comes from several facts in China’s development. First, Chinese economy has maintained rapid growth trend. The workforce productivity and total factor productivity have been increasing steadily. Second, large trade surpluses still exist in the current account, especially for trades in goods. It is reported that China’s outward direct investment and FDI remain in steady growth. Third, China’s reserves remain at an appropriate and reasonable level.

Besides, a reduced likelihood of foreign-exchange reforms will help ease depreciation pressure on the yuan because uncertainties will be fewer. China is now learning to manage market expectations and will likely try and direct investor attention to the currency’s exchange rate against the currency basket, and not just dollar, which will help soothe sentiment when the yuan weakens against the greenback.

Rani Jarkas, Chairman of Cedrus Investments, who is an investment pioneer with years of financial experience in Asia, said, “I believe that RMB exchange rate will remain stable for the mid-long term. RMB will remain one of the few currencies that can outperform the US dollar in a foreseeable future.”

Rani Jarkas, the Chairman of Cedrus Investments.

Rani Jarkas is a highly experienced financial services executive, with over 20 years of international banking experience. Currently, Mr. Jarkas is the Chairman of Cedrus Investments, a global boutique investment firm. Cedrus’ domain expertise is in life sciences, natural resources, energy, cleantech and nanotechnology. – Rani Jarkas