A FORMER Chinese foreign exchange regulator urged the country’s investors not to be alarmed by foreign institutions “talking down” the yuan, saying the currency remained relatively stable, the Economic Daily reported yesterday.

    Despite a 4-5 percent depreciation in 2015, the yuan, or renminbi, currency has still appreciated against a basket of currencies, Guan Tao, once head of the department of international payments at the State Administration of Foreign Exchange (SAFE), now senior researcher with another organization, said in an interview with the newspaper.

    Chinese regulators have argued that the yuan has remained stronger than it should given significant depreciation of neighboring currencies against the U.S. dollar.

    “The market should not be worried by loud noises talking down the renminbi by some overseas institutions,” Guan said.

    “While these institutions are talking down the yuan, they do not necessarily short the yuan,” he added. “Rational Chinese institutions and families are willing to become other people’s scissors for shearing.”

    Thanks to market-oriented reforms, the flexibility of the currency market has increased, but its overall volatility has been relatively low, Guan said.

    The yuan depreciated 4.7 percent against the dollar in 2015 and has lost 1.5 percent since the start if 2016, with economists forecasting a further depreciation in the order of around 5 percent or more this year.

    While permitting the yuan to depreciate against the dollar over time, China has played down the impact. It launched an index on the yuan’s exchange rate weighted against a basket of trade-related currencies last month, a move that will eventually loosen the currency’s link to the greenback.

    Guan also said that some capital outflows from China were normal and should not be regarded as capital flight and that China was closely watching its cross-border capital flows.

    “The basis of our country’s balance of international payments is still solid, with both civilian usage or official foreign debt payments guaranteed,” he said.

    A depreciating yuan and intervention by China’s central bank in foreign exchange markets to support the currency have seen a steep fall in China’s foreign exchange reserves, sparking widespread worries of large-scale capital outflows from China.

    (SD-Agencies)