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RMB Liberalisation Could Incur Significant FX Market Ructions

RMB Liberalisation Could Incur Significant FX Market Ructions

(11 April 2024 – China) The growing push from market participants for China to wind back tight Renminbi (RMB) restrictions could significantly unsettle emerging markets experts warn.

Bloomberg reports that most under threat are the currencies of Asian neighbours such as South Korea and Thailand, where China is the number one trading partner. But a suddenly weaker yuan may have a much wider impact, powering renewed strength in the greenback which would wreak havoc on developing countries under pressure currencies.

“We’ve gone through a period of exceptional, policy-driven stability for the yuan. That is unlikely to last as the fundamentals point to the fact that the yuan should be weaker, the dollar should be stronger and volatility should be stronger as well” commented Barclays Head of Currency Strategy, Themistoklis Fiotakis.

“China’s economy is also key for the future of the dollar. Not just via the yuan, but China’s growth, has an enormous effect on currency markets and on the broad dollar,” he said. “Growth impulses from China are the single most important variable driving the dollar. It dwarfs the Federal Reserve and the European Central Bank over longer windows.”

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