China’s yuan tools seen keeping currency flexible, but Beijing downplays West’s devaluation concerns

China’s central bankers sent a strong signal on Friday that they will insist on yuan flexibility to reflect market demands and absorb external shocks, but in the meantime it won’t let “big crocodiles” or a herd mentality disrupt the forex market when the national economy is at a critical junction in its recovery.

Speaking at a press conference in Beijing, officials with the People’s Bank of China (PBOC) also dismissed Western worries about a deliberate devaluation of China’s currency to lift the competitiveness of struggling exporters.

Unlike overseas investment banks that scrambled last month to cut China’s growth estimates on rising headwinds, the PBOC saw “better” signs in economic operations, household income and consumption, and a “good chance” for structural reforms.

“We won’t give up our [policy] concentration, nor let nature take its course like a Buddhist,” deputy governor Liu Guoqiang said when speaking about China’s yuan policy at the briefing.

Liu, in charge of the country’s forex market self-discipline mechanism, said that China has accumulated lots of tools to cope with yuan volatility, and that authorities have the confidence, conditions and ability to deal with various shocks and maintain the smooth operation of the forex market.

“As for specific policy tools, we will use them rationally according to the needs of the situation. Policy tools are meant to be used. As for when, which tool or how they are used, that will depend on the situation,” he said.

The comments came as the yuan has dropped below the key psychological point of 7.0 against the US dollar for the fourth time since 2019, and as worries have jumped as the world’s second-largest economy has been slowing.