Such a move may lead to a 10 per cent advance in the yuan, said Dr Stephen Jen.
- Chinese companies may be enticed to sell a US$1 trillion pile of US dollar-denominated assets as the US cuts interest rates, a move which could strengthen the yuan by up to 10 per cent, according to noted currency analyst Stephen Jen.
The theory goes like this: Chinese firms may have amassed more than US$2 trillion since the pandemic in offshore investments, parked in assets that pay higher rates than yuan-denominated ones, according to Dr Jen. When the US Federal Reserve lowers borrowing costs, the appeal of US dollar assets will erode and potentially spur a “conservative” US$1 trillion of flows back home as China’s rate discount with the US narrows.
The case for yuan gains looks even stronger now after Fed chair Jerome Powell said at the Jackson Hole symposium on Aug 23 that the time has come for the US to cut its policy rate. Still, the People’s Bank of China can iron out wild swings, Dr Jen said. Beijing has always been cautious with aggressive gains in the yuan as it can dent export competitiveness and undermine the already sluggish economic recovery.
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