Let Market Determine Yuan Says Growing Chorus in China

SCMP: To let the yuan fall or not? Beijing's big burning currency question
Against Beijing’s desire for a “controllable” depreciation, the government is losing control over capital flight, depleting foreign exchange reserve stockpile at an alarming speed, and failing to convince investors that there is “no fundamental basis for the continuous depreciation”.

Yu Yongding, a renowned Chinese economist who sat on the central bank’s monetary policy committee when the yuan was revalued in July 2005, said it was time for Beijing to reconsider the matter.

“The fear of the yuan’s depreciation has become a burden for us,” Yu told a forum over the weekend.

Yu, who for years has called for liberalising the yuan’s exchange rate over years, said China should give up foreign exchange interventions and safeguard its foreign exchange reserves so that China will “have sufficient ammunition” for future rainy days.

While Yu’s view is not in line with Beijing’s current policy, it is winning academic support.

Xu Sitao, the China chief economist at Deloitte, an auditing firm, said “the best strategy is to let the yuan fall in full, and the worst strategy is slowly depleting foreign exchange reserves”.
That's the policy I recommend. Acting early might cost a politician his job in a democracy, but Chinese officials aren't going to lose their jobs for being prudent. A large one-off devaluation that undervalues the yuan, creating demand and an appreciation trend following the move, is the best course of action. Of course there are political risks, but had China acted in 2015 or 2016 it would have begun the final washout phase for emerging markets, solved its debt problem, and ended up with Trump as President. Now it faces greater economic risk and greater political risk with an American administration ready to retaliate. Once again, Chinese officials missed their window for action. They are not alone though. The entire globe is engaged in a giant can-kicking scheme, hoping to avoid the final debt denouement.

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