Yuan faces appreciation trend in long term, says Citigroup
Hong Kong expected to maintain offshore role despite recent sharp drop in trading
The yuan will encounter a trend of appreciation rather than depreciation in three to five years, says Citigroup managing director and chief China economist Liu Ligang.
“There is not much depreciation pressure for the yuan,” he said, tipping the currency to slide to between 6.5 and 6.6 against the US dollar by the end of this year – from 6.45 at present – but to rise in the long run following further opening of the mainland’s capital market.
Mainland China’s trade surplus was around US$600 billion last year, and Liu said it would not have reached those heights with a substantially overvalued currency.
“China’s deficit in capital and financial account was partly due to the increase of ‘net errors and omissions’ since the beginning of 2014,” he said. “That’s why the central bank tightened the regulations on capital account, especially on the capital outflow through illegal channels such as underground banks.”
The PBOC’s communication with the market must be better in the future, as the volatility of the yuan should converge with its peers if it becomes a major currency
The deficit in net errors and omissions exceeded US$400 million in almost every quarter in the past two years, which was more than double the average in the previous two years according to data on the State Administration of Foreign Exchange’s website.