China cites ‘flexible’ yuan exchange rate, healthy economy as buffer against US tapering

Currency regulator says China’s economic fundamentals, including ‘improving flexibility’ of the yuan exchange rate, mean impact of US tapering controllable

Comments reinforce market expectations Beijing is less willing to intervene in the foreign exchange market, allowing for greater volatility

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Chinese authorities have signalled willingness to accept more foreign exchange volatility. Photo: AP

Published: 12:00am, 22 Oct 2021Updated: 9:00am, 22 Oct 2021

China’s advanced economy and the flexibility of its yuan exchange rate leave it well placed to absorb shocks from policy tightening by the US Federal Reserve, including hot money flows out of the country, the nation’s currency regulator has said.

The assurance from China’s State Administration of Foreign Exchange (SAFE) comes as the Federal Reserve inches closer to reducing monthly asset purchases and, possibly in 2023, raising interest rates.

The prospect of US monetary tightening has evoked memories of the Federal Reserve’s policy moves in 2013, which resulted in investor flight from emerging markets and a depreciation of the yuan, a situation nicknamed the “taper tantrum”.

“We have accumulated a lot of experience and policy tools, and have taken many pre-emptive actions this year,” said Pan Gongsheng, administrator of SAFE and deputy-governor of the People’s Bank of China (PBOC), at the Financial Street Forum in Beijing on Wednesday.

“The yuan exchange rate will be basically stable at a level of equilibrium … as its flexibility improves, it can play a better role in self-adjustment.”