The Chinese yuan will benefit from a de-escalation of Sino-U.S. trade tensions but is vulnerable to possible volatility in cross-border capital flows, a former Chinese foreign currency regulator told the China Business News.
The interim deal reached by Washington and Beijing means trade frictions have ameliorated, reducing uncertainty and boosting market confidence in the yuan, the newspaper said, citing Guan Tao, a former official at the State Administration of Foreign Exchange.
Guan warned, however, that a slow recovery in global growth and lofty asset prices could cause global market fluctuations, which in turn could bring wild swings in cross-border capital flows that impact expectations regarding the yuan.
Guan expected China to use both macroeconomic and structural monetary policy tools to counter an economic slowdown next year, China Business News reported.
But China should learn lessons from Japan’s experience and refrain from using strong stimulus, which could result in asset price bubbles and long-term economic stagnation, Guan was quoted as saying.
