Beijing’s Reform May Adversely Affect the Yuan

After a positive year for the yuan, Beijing’s reform drive may knock the Chinese currency off its path of appreciation over the coming 12-18 months, according to Lombard Street Research.

“Beijing has firmly set off on the route of reform, planning to widen the exchange rate band and liberalize capital flows. But contrary to the expectations of many, this is most likely going to push the yuan down rather than up,” Diana Choyleva, head of macroeconomic research at Lombard Street Research wrote in a report.

“Opening the capital account will fundamentally change the direction of causation between the current account and the yuan. Capital flows will become the key driver,” she added.

CNBC

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