And if the Chinese government takes stringent control measures to prevent a surge of external ‘hot money’, RMB is unlikely to experience any upward spike.
It is also worth noting that the Chinese authorities reaffirmed this week that to strengthen the control of flow of hot money outside of China, the government will adopt compulsory administrative measures to curb the appreciation of the RMB. Even though it is nearly impossible to change the general trend, officials may aim at a lower speed of the RMB appreciation. After all, China's major trading partners including the United States hope to earn economic benefits through the appreciation of the RMB while the Chinese hope to gain an anti-inflationary anchor.
Meanwhile, the Chinese authorities are considering an expansion of derivatives for offer in Chinese banks to meet the demand under the current currency regime. They see it also as a way for innovation in the Chinese financial sector.
Dennis Jung
XTB China
