BEIJING (BLOOMBERG) - The era of yuan appreciation has come to an end with China's move to lower the daily reference rate by 1.9 per cent, said Yu Yongding, a member of China's monetary policy committee when the currency was revalued in July 2005.
The yuan exchange rate will enter "a period of stabilization or even deprecation," said Mr Yu, now a researcher with the Chinese Academy of Social Sciences. The People's Bank of China's reduction to the daily fixing was a "symbol" for the change, although signs of yuan depreciation were evident before Tuesday'a move, he said.
The biggest slide of yuan since the peg ended a decade ago is a one-time adjustment, the PBOC said in a statement, adding it will strengthen the market's role in the fixing and promote the convergence of the onshore and offshore rates. The move comes as sliding exports add to slowdown pressure and may add to concerns more capital will flow out of the nation.
While a weaker yuan may bolster exports in the short term, it's a dangerous long-term way to increase shipments, Mr Yu said.
"It would be a very wrong and stupid way to boost exports, and I don't think China's central bank will opt for that," he said. "The depreciation is more of a recognition and respect of market forces."
"The PBOC should reduce its intervention in the yuan," Mr Yu said. "If the market believes the yuan should be weaker, then just let it weaken."
Mr Yu said the yuan's change will "for sure affect other currencies of emerging markets," although the biggest deciding factor will be the policy stance of the US Federal Reserve.