Goldman Sachs economists warn China's yuan trading likely to become more volatile
- Reducing reliance on the US dollar could avoid vulnerability Russia has faced with American sanctions on its companies
- Convergence between the offshore traded CNH and the onshore traded CNY argued as likely
China’s exchange rate is likely to become more volatile in time as the country pushes greater international use of the yuan, according to Goldman Sachs.
While the yuan internationalisation campaign hit a setback as China tightened regulation of capital flows in the wake of a messy 2015 devaluation, there is increasing pressure for policymakers to take up the initiative again, economists including senior China economist MK Tang wrote in a note on Monday.
China’s current account will tip into deficit in coming years, in the view of many strategists, as its increasingly large economy continues to grow faster than the rest of the world.
In financing that deficit, China could reduce risks if it acquired funding in its own currency – much like the United States does now, and unlike more vulnerable countries such as Brazil, Goldman noted.
By reducing reliance on the US dollar, China could also avoid the kind of vulnerability Russia has faced with US sanctions on its companies, it said.