BBH Says China Economy Will Ride Out Equity Selloff

Despite the selloff in Chinese equities, with some analysts comparing it to the 1929 Wall Street crash, one bank says it will not necessarily have negative effects on the country’s economy, or even in the yuan’s quest to becoming a world reserve currency.

“The sharp decline in Chinese stocks and the policy response is important for global investors but not on the grounds commonly cited,” said analysts from Brown Brothers Harriman in a note to clients on Tuesday.

“It is unlikely to have a major impact on the Chinese economy. It is unlikely to be a key factor in the IMF’s decision regarding the composition of the SDR basket.”

The Chinese yuan is the next currency to be considered by the International Monetary Fund to become a part of the organization’s special drawing rights basket – a basket of currencies, including the U.S. dollar, British pound sterling, the euro and the Japanese yen. SDRs are used as supplementary foreign exchange reserve assets by the IMF.

Looking first at the yuan’s race to becoming a reserve currency, the analysts noted that formal requirements for the currency to be considered for SDRs are the country’s export share, “which is not an issue for China,” and that the yuan be “freely usable.”

via Kitco

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza