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China Looks to Contain Yuan Volatility Amidst Falling Reserves

By | Jan 11, 2017 06:45 AM EST
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Chinese Yuan

Chinese yuan showed high volatility in 2016 and the trend seems to continue this year too. Last week, the currency showed its biggest ever two-day gain of 2.47 percent on Wednesday and Thursday. The currency eventually slid on Friday and continued the decline on Monday this week.

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China is planning to contain the fall of its currency value as the country struggles to maintain its reserves. The currency showed the signs of weakness this week and the People's Bank of China set the mark on Monday at 0.87 percent lower than last Friday.

Chinese yuan showed high volatility in 2016 and the trend seems to continue this year too. Last week, the currency showed its biggest ever two-day gain of 2.47 percent on Wednesday and Thursday. The currency eventually slid on Friday and continued the decline on Monday this week.

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Stephen Innes, senior trader at Oanda, stated in a report, "Despite some semblance of order emerging, we should expect volatility to remain high." The volatility is also affected by global cues, which are beyond the realm of domestic authorities.

Chinese authorities are looking to control various factors causing the decline in yuan value. Recently, it directed state banks to withhold funds in the interbank market in Hong Kong. The move came as a surprise attack on people who had shorted yuan.

Yuan is fast gaining clout in the international monetary market. In October last year, the currency was added to the basket Special Drawing Rights by the IMF. The main assumption behind the addition was that it will propel the measures to liberalize the currency.

The country is also looking to curtail the capital flow out of the country. Chinese authorities have instituted several measures including closer scrutiny of outward remittance by individuals and corporates to ensure that the currency remains on stable ground.

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