Advertisement
Amid coronavirus-driven volatility, three reasons the rennimbi has remained stable
- The renminbi is backed by a Chinese economy that is recovering faster than others, an improving current account balance and a central bank not keen on devaluation
- However, an escalation of US-China trade tensions could trigger a weakening of the currency
Reading Time:3 minutes
Why you can trust SCMP
What has been notably absent during the Covid-19 crisis is concern about the stability of the renminbi, unlike during the 2008-09 and 2015-16 periods. Despite significant economic damage from the coronavirus outbreak and heightened market volatility, the renminbi has remained relatively resilient so far.
Advertisement
The currency has depreciated by less than 2 per cent in the year to date against the US dollar, performing better than some G10 economy currencies, such as the euro, which has weakened by around 3.5 per cent. Meanwhile, the currencies of some emerging market commodity exporters, such as South Africa and Brazil, have depreciated by more than 20 per cent so far this year versus the US dollar.
There are a number of factors supporting the yuan. First, the economic growth differential between China and the United States this year is likely to favour the Chinese currency. The market is predicting a significant slowdown in China’s gross domestic product growth this year, but most forecasters expect a slight expansion of the Chinese economy in 2020, compared to a contraction in the US.
Apart from getting Covid-19 infections under control quicker than the US, differences in economic structure will support a faster recovery in China.
03:03
China’s experience has shown that recovery in the industrial sector is likely to lead that of the service sector as the economy emerges from the coronavirus crisis.
Advertisement
Advertisement