Mature Domestic FX Market Can Help Keep Yuan Stable: Guan Tao

China should further develop domestic foreign exchange market to help stabilize the yuan, especially by expanding private foreign investment channels, allowing more cross-border capital to conduct currency exchanges in China, and strengthening the onshore yuan’s use in financial settlements, wrote Guan Tao, global chief economist at BOC International, in an article published on Yicai.com. The PBOC will not interfere with the specific level of the yuan as it has basically exited normal intervention of the FX market, but its main task is to avoid excessive and abnormal fluctuation of the yuan and manage market expectation, said Guan. The PBOC’s hike to FX deposit reserve requirement ratio by 2 percentage points last week signaled increasing regulations to the currency as the recent appreciation of yuan was seen as excessive and could affect the export competitiveness of companies, said Guan, adding that the yuan has been a stronger currency than the U.S. dollar this year.