Chinese Slowdown and Credit Crunch Could Hurt Yuan’s Rise For Convertibility

Turbulence in Chinese financial markets, reflecting growing worries about investing in the country’s assets, could slow the yuan’s rapid emergence as a major international currency.

Over the past five years, the yuan has gone from being a thinly traded currency to a major one for trade settlement, retail and institutional investment and arbitrage activity. A host of financial and commodity linked derivatives are tied to it.

Analysts said two changes this year in Chinese policy have highlighted risks that could slow down the yuan’s march towards internationalization: the widening of the yuan’s daily trading band and a toughening of Beijing’s attitude towards defaults.

The People’s Bank of China (PBOC), the central bank, this month doubled the daily permitted trading band for the yuan to 2 percent from 1 percent either side of a reference rate. It also pushed the currency lower in a bid to shake hot money out of the market to make clear the yuan is no longer a one-way upward bet.

via CNBC

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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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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