HONG KONG — China’s currency stabilized on Friday, ending a three-day plunge that shookmarkets globally during the renminbi’s steepest devaluation in decades.
For the first time since Tuesday, the country’s central bank set the official exchange ratehigher — though only slightly — against the dollar.
The renminbi responded by strengthening 0.1 percent, ending the week at 6.392 per dollar.Still, that meant the People’s Bank of China had effectively devalued the currency 4.4 percent.It was the steepest drop since the country’s modern exchange rate system was set up in1994.
The sudden decline added fuel to a global debate about currency wars. It also raised newconcerns about whether Chinese leaders could manage the country’s huge but slowing economyas they pursue market-driven overhauls to the financial system, which remains broadly understate control.
China’s stock markets are still struggling after a sell-off that began in mid-June. Thegovernment took extraordinary measures to support share prices, including barring majorshareholders from selling stocks and ordering state agencies to buy, with backing from statebanks. But they had little lasting effect.
The renminbi’s fall should provide a modest boost to the country’s exporters, as the prices oftheir goods become relatively cheaper to overseas buyers. But officials at the central bank havedenied that was why they pushed the currency down, saying instead that they wished to movecloser to an exchange rate guided by trading.
Instead of ignoring movements in the currency market, the central bank said it would begin touse them as the reference point in its daily setting of the exchange rate. The renminbi’sreaction to this change, they said, was a “one-off” adjustment.
The currency had been under pressure to weaken as China’s economy slowed. But the centralbank kept it closely linked to the dollar, which had strengthened against most other majorcurrencies because of the rebounding economy in the United States.
“China’s equities market crumbled this summer because its regulators were incapable of actingin the face of a bubble,” Daniel H. Rosen, a founding partner of the consultancy the RhodiumGroup, wrote in a research note. China’s central bank “was determined not to repeat thatmistake with the currency,” he added.
By Friday, China had made clear it would allow the currency to move with the markets. But thecentral bank also showed it would not hesitate to step in if needed. And the renminbi’s dailyswings are still capped at a rise or fall of 2 percent.
The central bank set the exchange rate at 6.397 per dollar on Friday, a tiny 0.01 percent gainfrom Thursday’s market close. It remained steady around that level throughout trading onFriday, despite heavy volume, suggesting that the central bank was acting to keep the currencystable. (www.chinainout.com)
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