China should cool efforts to internationalise the yuan currency in response to the pressures that have prompted emergency steps to shore up its stock market, according to analysts from the world's second largest currency trader, Deutsche Bank. The yuan has gained a third in value since its 2005 revaluation, a move welcomed by the United States and others. Any further liberalisation at this stage might lead the currency to weaken given China's growing economic worries.
In a note dated July 8 comparing China's current problems with the United States' in the late 1980s, the bank's Global Head of Currency Strategy, Alan Ruskin, said the People's Bank of China was "struggling" with its mix of a currency peg and several elements of support for banking liquidity and growth. "All this while attempting to liberalize interest rates and open the capital account while maintaining fiscal discipline," Ruskin wrote. "It's a tall ask. It would suggest that some objectives like the internationalization of the renminbi be deferred."
Shanghai's main stock market had plunged 30 percent since mid-June before authorities acted to halt the slide this week. On Thursday, stocks rebounded almost 6 percent, the biggest rise since 2009. Analysts, however, say Beijing's measures seek mainly to halt the sell-off by putting limits on freedom of trade. Beijing had been moving to further liberalise money flows in and out of China and to persuade the International Monetary Fund to add the yuan to its basket of reserve currencies.