Yuan Value Hits 4-Month High... Stimulating Yuan Asset Purchases

Foreign Exchange Reserves Also Increase... Holding $3.112 Trillion as of End of June

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] The Chinese yuan exchange rate fell below 7 yuan per dollar in the offshore foreign exchange market, raising the yuan's value to its highest level in the past four months. Foreign purchases of yuan-denominated assets have also been actively carried out, leading to a slight increase in China's foreign exchange reserves.

According to China's Global Times on the 8th, the yuan exchange rate in the offshore market recorded 6.9971 yuan per dollar the previous day, falling below the 7 yuan per dollar level. The yuan's value, which moves inversely to the exchange rate, reached its highest level in the past four months. The central parity rate announced by the People's Bank of China also fell 0.5% to 7.0310 yuan the previous day, marking the highest yuan value in three months since April 13. The yuan, which had depreciated by 1.24% against the dollar in the first half of this year, is attempting a turnaround with strength in the second half.

One reason for the yuan's appreciation is capital inflow into China. Liu Xuezhe, a senior researcher at Bank of Communications China, explained, "Capital inflows into the Chinese stock market are causing the yuan to strengthen in the short term. The growth potential of the Chinese economy and the easing of financial market restrictions for foreign investors are attracting foreign capital. Since foreigners must first convert to yuan to invest in China's financial market, demand for the yuan is increasing."

Recently, the Chinese stock market has been soaring day after day. The Shanghai Composite Index surpassed the 3,300 mark the previous day, closing at 3,345.34, up 0.37% from the previous trading day. During the session, the stock price jumped more than 2%, reaching as high as 3,407.08. The Chinese stock market, which has risen for six consecutive trading days, is at its highest closing level in two and a half years since February 2018.

The yuan's strength is expected to accelerate the pace of yuan internationalization. Researcher Liu said, "As volatility in global financial markets increases, expectations are growing that the yuan will become a safe haven. The yuan's appreciation will encourage foreigners to buy more yuan-denominated assets, ultimately speeding up the internationalization of the yuan." Lianping, an economist at Zhixin Investment Research, predicted, "In the second half of the year, the yuan will continue to strengthen, rising to a level of 6.8 to 7.0 yuan per dollar."

Meanwhile, amid the yuan's appreciation, China's foreign exchange reserves are also increasing. According to the People's Bank of China, as of the end of June, China's foreign exchange reserves stood at $3.112 trillion, up from $3.102 trillion in May.

This content was produced with the assistance of AI translation services.