Some years ago, a City of London economist was challenged as to why, during the past year, traders had made consistently wrong bets on the likely path of UK interest rates.
He shrugged off the criticism, saying the accuracy or otherwise of the predictions was not really the point: “You’ve got to have something to trade On.”
Anyone taking that somewhat-cavalier attitude ought probably to steer clear of China’s national currency. Fleet-footed, opportunistic trading is somewhat difficult when the yuan has barely moved during the past 12 months.
That doesn’t mean to say that nothing of interest is happening behind the apparent stolidity of the yuan, also known as the renminbi, or “people’s money”. Quite the opposite, of which more in a moment.
Trading within a Range
But the near-stationery performance of the yuan against its fellow reserve currencies during the recent past tells its own story.
It currently trades at $0.14 against the US dollar, as it did a month ago, on 3 January. Twelve months ago, on 3 February 2019, it changed hands at $0.15.
Against the yen, it stands at 15.46 yen. A month ago, on 3 January, it was worth 15.52 yen, and 12 months ago, on 3 February, it traded at 16.23 yen.
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Its euro value is currently €0.13, as it was a month ago, on 3 January. And 12 months ago, on 3 February 2019, it was again worth €0.13.
There has been no more action in terms of its sterling value, currently £0.11, the same as a month ago and 12 months ago.
None of this is accidental. The yuan does not float freely on foreign exchanges as do the other major currencies. Rather, the country’s reserve institution, the People’s Bank of China, sets a trading range outside which it does not which the currency to move.
The Gloss has Come Off
Some complain that this is an unfair practice, a so-called dirty float, and that it allows China to manipulate its currency to help export sales. But in fairness, almost all currencies traded within permitted bands until the early Seventies and those in Europe’s Exchange-Rate Mechanism did so until the launch of the euro in 1999.
The yuan has been on something of a roundabout journey since the turn of the Millennium. One newspaper described it back then as “China’s mighty money…the biggest currency you’ve never heard of”.
Then, having satisfied the International Monetary Fund (IMF) that the yuan was not being deliberately undervalued, Beijing saw it admitted in autumn 2016 to the elite basket of reserve currencies, alongside the dollar, yen, euro and pound – that underpins the “special drawing rights”, an internal IMF currency that is used only among member governments.
For a while, the yuan seemed to be sweeping all before it, with suggestions that, at least in countries along China’s “Belt & Road” initiative across southern Asia, it would become the first choice reserve Currency.
Britain’s then Chancellor George Osborne called for the City to be the premier centre outside China for trading the yuan.
Since then, the gloss has come off the yuan. A trade dispute with the US coupled with an economic slowdown has cooled talk of the currency’s emerging world role.
But as we have seen, it does remain remarkably stable.