The never-ending stalemate of frozen Yuan ended a few years back and it has been swinging to either side only marginally, as allowed by the Chinese Government. The intention then was to maintain an artificial barrier against appreciation of Yuan, which successfully reined in the fluctuations that would have been otherwise occurred. The things now seem to be changing.


China's currency is facing strong downward pressure this year as the country's once surging growth rates slow amid a stalling global economy and signs of capital flight after years of inflows. It is a new development for the Yuan, once on a steady upward trajectory on the back of expectations that China's impressive economic strength made the currency a one-way bet. The economy, though, has slowed for six straight quarters and the 7.6 percent year-on-year expansion in gross domestic product for the three months ended June 30 was the worst since the 2008-2009 global financial crisis. The Yuan has dropped just one percent this year, but the fall has come after years of gains amid foreign pressure by China's trading partners, especially the United States, who claimed it was undervalued.


The China Securities Journal, a state newspaper, carried a front-page commentary this month saying markets have now accepted that the currency is on a weakening track, calling that a potential boon for the economy. A weaker Yuan could spur positive effects such as boosting exports, it added. Broader trends are also pressuring the Yuan as the dollar has started to strengthen this year against other Asian currencies, said Bill Belchere, chief, emerging markets economist at Mirae Asset Securities in Hong Kong. Analysts say that the decline so far in the Yuan, also known as the Renminbi, would be far larger if authorities were not providing a floor by selling some of China's trove of $3 trillion in foreign reserves. "If it were freely traded today, the RMB would be 10 percent below where it is," said Shanghai-based independent economist Andy Xie. "That's what the real economy is trying to get." Xie added, however, that authorities cannot let that happen as they are dealing with a serious property slump which, if mishandled, could lead to a loss of confidence. "If the currency drops significantly, the property market will collapse," he said. "They are trying to achieve some sort of soft landing."