The stability in Yuan will reflect the stability of the country. The central bank of China is fighting to keep the currency steady at 7.
The Deputy Governor of the PBOC Pan Gongsheng has said that the central bank has the ability to keep the currency stable and maintain its balance in the foreign exchange market.
Pan is the Director of the State Administration of Foreign Exchange. He claims that the People’s Bank of China with prudent management can combat all irregularities in maintaining the foreign exchange market operations. China has the policy tools to handle all fluctuations in its currency market, he says.
Analysts say that the recent slide in the currency is due to the slowdown in the Chinese economy which has been battered by the trade war tiffs.
The yuan has come down by 3 percent against the dollar in May. This has made the Chinese yuan the worst performing currency in Asia. On Friday, it broke levels of 6.9, which is the lowest this year.
President Trump has always claimed that China weakens its currency to help exporters.
President Xi Jinping has pledged to keep the currency from depreciation. The weakness in the currency will test the President. With tight capital control, the currency will serve as a crucial buffer in the foreign exchange reserves.
If yuan sees a breach past 7, it would hurt investor confidence and bring in excess outflow pressure. In 2015, the effects of a weak yuan brought in a sell-off and a panic in the Chinese stock market.
The PBOC has strong tools to control the volatility in the currency. The country prefers to keep the exchange rate steady and at levels above 7, says strategist Chun Him Cheung from Morgan Stanley.
A slump in the yuan will make household consumers spend less and lessen corporate investments say strategists from Citigroup Inc.