Recent Yuan Declines ‘Within Normal Range,’ China’s Lou Says

Recent weakness in China’s currency is within the normal range and doesn’t signal a change in economic fundamentals, according to Finance Minister Lou Jiwei.

The offshore yuan fell 1 percent to 6.0933 per dollar in the five days through Feb. 21, a decline unseen since September 2011. A Chinese manufacturing index fell to the lowest level in seven months, according to a preliminary purchasing managers’ index released on Feb. 20. Economists predict gross domestic product will climb this year at the slowest pace since 1990.

“There will be ups and downs” and recent moves are “within normal range,” Lou told Bloomberg News in Sydney, where he is attending a meeting of Group of 20 finance ministers and central bankers. “You can’t say that the yuan is starting to depreciate just because of a small volatility.”

Asian currencies had their worst weekly loss in six months as signs of a deeper economic slowdown in China and the Federal Reserve’s support for tapering bond purchases weighed on emerging market currencies from the yuan to South Korea’s won and Thailand’s baht.

The central banks of Korea and Australia today extended efforts in the Asia-Pacific region to promote bilateral trade and settlement in local currencies even in times of financial stress by signing a foreign-exchange swap agreement. The deal is for up to 5 trillion won ($4.7 billion) or A$5 billion ($4.5 billion) and will last for three years initially, the central banks said.

Swap Deals

The Bank of Korea signed a similar deal with the Central Bank of United Arab Emirates in October while Japan expanded similar agreements with Indonesia and India over the past few months.

U.S. Treasury Secretary Jacob J. Lew has told his G-20 colleagues that volatility in emerging markets is among global economic concerns and China’s “reform efforts” and financial risks are under scrutiny.

The onshore yuan fell 0.41 percent last week to close at 6.0919 in Shanghai, according to China Foreign Exchange Trade System prices. The People’s Bank of China cut the daily reference rate on Feb. 21 to a two-month low of 6.1176.

The PBOC said in the past week that it plans to expand the yuan’s trading band in an “orderly” manner in 2014, while broadening cross-border usage of the currency.

Trading Band

The onshore spot rate can currently diverge a maximum 1 percent from the daily fixing, a limit that was expanded in April 2012 from 0.5 percent, and before that from 0.3 percent in May 2007.

Global yuan trading volume surged to $120 billion a day on average in April 2013, from $34 billion in 2010, according to a Bank for International Settlements survey. Daily average turnover in offshore yuan spot, forwards and options could reach $20 billion in 2014, based on a December estimate by Deutsche Bank AG, the world’s biggest currency trader.

China’s central bank governor Zhou Xiaochuan, also in Sydney for the G-20 meeting, has expressed confidence in the nation’s growth prospects. “There’s no big problem” for China to maintain a steady and healthy economic expansion, Zhou told Bloomberg News on Feb. 21.

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