China Rides Greenback as U.S. Dollar Index Reaches Major Trendline

RMB world's second strongest currency despite recent fall

The euro and yen dropped over 10% against the dollar last year but the RMB only declined 2%, while the real and nominal effective exchange rates of the currency have actually gone up. From Jan. 1 last year to March 4, the currency appreciated over 16% against the euro, 3.96% against the British pound and nearly 10% against the Japanese yen and Australian dollar. Internet users in China said they should take advantage of the exchange rates and travel to these countries.

The renminbi is the most stable and strongest currency among BRICS nations, said Yi, who added that the currency should not be solely judged from its value against the US dollar but also against other global currencies. The official said the currency's fluctuation has increased since 2014 because China's central bank has reduced its intervention in the foreign exchange market. He said the RMB's movements have remained in a reasonable range.

Yi also said he retains confidence in the currency because China's GDP growth remains strong compared to other countries even if it has slowed down. The country's trade surplus has also remained high and the RMB itself is increasingly an international currency, said the official. RMB demand from asset management institutes and managers around the world for trade, foreign investments and asset management has also increased. The country's cross-border capital flow is also normal, he said.

Chinese coverage at 21st CBH: 解码“第二强货币”：人民币指数一年涨了9%

Ambrose Evans-Pritchard in the Telegraph: Liquidity evaporates in China as 'fiscal cliff' nears

Real interest rates have rocketed. The trade-weighted rise in the yuan over the past two years has been spectacular. Fiscal policy is about to tighten drastically as the authorities clamp down on big-spending local governments.

Put together, China is pursuing the most contractionary mix of economic policies in the G20, relative to the status quo ante. Collateral damage is already visible in the sliding global prices of iron ore, copper, nickel, lead and zinc over recent months, as well as thermal coal, oil, corn and even sugar.

Zhiwei Zhang, from Deutsche Bank, says China faces a "fiscal cliff" this year as Beijing attempts to rein in spending. "This year, China will likely face the worst fiscal challenge since 1981. This is not well recognised in the market," he said.

The article contains Deutsche Bank's revenue estimates (see Deutsche Bank Says Land Sales Slowdown Only Started Hitting in Q4 for background)