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Macroscope
OpinionComment
Neal Kimberley
Neal Kimberley

Macroscope | Ukraine crisis: yuan’s emergence as a safe haven a win for China’s economy

  • The Chinese economy is the world’s manufacturer but it needs to import a vast amount of energy, raw material and food
  • With commodity prices spiking due to Russia’s invasion of Ukraine and growing risks of imported inflation, the yuan’s resilience is a positive sign

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The Chinese currency has emerged as a safe haven currency as markets react to the Ukraine crisis. Photo: Bloomberg
Neal Kimberley
The resilience of the Chinese yuan last week was noteworthy as the foreign exchanges reacted to unfolding events in Ukraine. While sensitive to the tragedy and human cost of war, forex markets necessarily reacted by adopting a risk-averse approach, seeking out currencies that are held to have safe-haven characteristics.
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The renminbi would now appear to be one of a select group of safe haven currencies, and in present circumstances that is no bad thing for China.

News of Russia’s invasion of Ukraine initially triggered equity market sell-offs around the world, while in the currency markets, investors sought to secure currencies traditionally regarded as safe havens in times of major uncertainty, such as the Japanese yen, the Swiss franc and, of course, the US dollar.

This time, the yuan was also sought after. Indeed, it “has been trading like a safe-haven currency during the Ukraine crisis”, Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore told Reuters, adding, “Prospects for further easing [in China] should see growth recover, hence keeping Chinese equities resilient even as US equities have sold off”.

Investors will surely have taken into account that Beijing has been extolling the virtues of yuan stability.
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At the same time, with nominal yields on Chinese government bonds above the consumer price index in China, investors will have computed that their safe haven yuan was also offering a real renminbi-denominated return on government bond investments, an attractive proposition given that other traditional safe haven currencies such as the greenback and the yen don’t currently offer an equivalent inflation-adjusted positive return.

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