The Chinese CNY is far from internationalizing

The recent depreciation of the Chinese yuan (Renminbi, CNY) has raised concerns. It was stable before the summer, but suddenly depreciated by a few thousand points against the American dollar (US$). Over the past five months, it has fallen from an exchange rate of 6.37 to 7.00, a depreciation of exactly 10%.

When the CNY started falling, the USD index (DXY) was at 101; is now 110, an appreciation of 9% over the same period. Although the CNY depreciated gradually while the DXY appreciated gradually, the final total percentage changes are basically comparable.

Since the CNY has fallen at a similar speed to other currencies other than the USD, the impression of the “CNY crisis” has obviously been exaggerated, especially by the media. From a political point of view, exchange rate movements of an order of magnitude of 10% in two quarters are considered not insignificant, but also not too rare.

Since the collapse of the Bretton Woods system, when most currencies began to float, the US dollar has had a few secular rises where each round has lasted five to six years, and for each year it has jumped an average of five at six percent.

However, the real appreciation of the US dollar has never happened linearly throughout; instead, the graphics setup is choppy, and a 10% speed boost in two quarters isn’t too uncommon. As the CNY exchange rate moves in tandem with that of its neighbours, it cannot be said that this is due to strong political decisions. And as experience shows, without large changes of, say, a third over a short period of time (e.g. within a few months), the real effect is indeed not obvious. Moreover, if most other currencies other than the US dollar do the same, this effect will be offset.

In terms of the nominal effective exchange rate (an exchange rate weighted against a basket of other currencies), which could be compiled by the Bank for International Settlements (BIS) or the International Monetary Fund (IMF), or any other bank, the CNY has shown a stable trend over the past three quarters. That said, the CNY is stable against a basket of currencies but only depreciated against the US dollar. So, from a cyclical point of view, there is no evidence that the Chinese authorities are using exchange rate tools to manage the real economy. However, they could fear capital outflows.

Yet, from a longer-term perspective, the strength of the exchange rate should reflect the health of a country. The functions of a currency are mainly seen in its current transactions or its store of value for the future. On the latter, the CNY has seen some improvement, rising from 1.08% first reported in 2017 to 2.88% in the last quarter of 2022. However, this is only half that of the British pound. or the Japanese Yen (the fourth and third largest currencies respectively), as both improved 5%, the Euro (the second largest) rose 20% and the US Dollar rose 59%. The share of the CNY is just above that of the Canadian dollar.

Thus, the international function of the CNY manifests itself mainly in transactions. As the attached graph shows, however, CNY’s share of SWIFT payments has remained stable at 2% for the past eight years. As an international currency, the CNY still has a long way to go.

The opinions expressed in this article are the opinions of the author and do not necessarily reflect the opinions of The Epoch Times.

Loi Ka-chung


Law Ka-chung is a commentator on macroeconomics and global markets. He has written numerous columns in newspapers and magazines and spoken about the markets on various TV, radio and online channels in Hong Kong since 2005. He covers all types of economic and financial topics in the United States, Europe and in Asia, ranging from macroeconomic theories to market outlooks for equities, currencies, rates, yields and commodities. He served as chief economist and strategist at a Hong Kong branch of China’s fifth-largest bank for more than 12 years. He has a doctorate. in Economics, MSc in Mathematics and MSc in Astrophysics. Email:

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