China’s foreign exchange settlement rose in the first quarter, but at an easing rate. Officials say China’s slower economic growth and the U.S. central bank’s tapering may bring more volatility to cross border capital flows, it will be conventional for the Chinese yuan to float either way.
A solid rise from January to March, yet the tempo is falling month by month. China’s foreign exchange settlement and sale surplus comes in a downward trend, from more than 70 billion US dollars in the beginning, to just over 40 billion US dollars at the quarter end, according to China’s foreign exchange regulator.
Officials say both domestic and international factors weigh on the surplus, and put a drag on the yuan.
“Capital flow is playing an increasingly bigger role in the foreign exchange rate. Domestically, China’s growth is stable but slowing, foreign trade is soft and corporate debt defaults have emerged. Externally, the Federal Reserve’s tapering is speeding up. All is playing a role in cross border capital flows, especially when the exchange rate becomes more volatile. The volatility then reflects on market trading, further influencing the exchange rate.” said Guan Tao, Dir. of Balance of Payments Dept., State Administration of Foreign Exchange.
The yuan’s spot rate has eased more than three percent against the dollar this year, a phenomenon that Guan says is normal.
“When the yuan’s foreign exchange rate is getting to equilibrium, the market will play a bigger role in rate-setting. A two-way fluctuation may become conventional in the future.” said Guan Tao, Dir. of Balance of Payments Dept., State Administration of Foreign Exchange.
Analysts say the falling forex rate may ease in the long term, due to China’s above-average growth rate, and higher interest rates.