Yuan value gap basically covered, currency still strong: PBOC

BEIJING - The Chinese currency renminbi (RMB), or the yuan, should remain strong in the long run, a central bank official said on Thursday, after worries that the bank's adjustment of the exchange rate mechanism earlier this week would lead to a slump in the currency.

The value of the yuan has gradually returned to market levels as the discrepancy between the central parity rate and the actual trading rate has been corrected after declines in the past few days, Zhang Xiaohui, assistant governor of the People's Bank of China (PBOC), said during a press conference here.

There used to be a 3-percent gap accumulated between the official rate and market expectations, Zhang said.

The central parity rate of the yuan weakened by 704 basis points, or 1.1 percent, to 6.401 against the US dollar on Thursday, narrowing from Wednesday's 1.6 percent and almost 1.9 percent on Tuesday.

The sharp falls came after the PBOC adjusted the exchange rate formation mechanism on Tuesday, a move it said was designed to better reflect market development in the exchange rate of the yuan against the US dollar.

The market reacted with surprise and concern at the currency's prospects.

But Zhang said there is no ground for persistent and substantial depreciation.

Another senior official, Yi Gang, dismissed media reports that Chinese authorities had demanded a 10-percent depreciation in the yuan by the end of the year in hopes of rescuing the country's slipping exports, describing such reports as "completely baseless."

Under a managed floating exchange rate system, the value of the yuan is determined by the market. The bank cannot intervene with this, but focuses more on improving the exchange rate formation mechanism, said Yi, who currently serves as deputy governor of the PBOC and director of the State Administration of Foreign Exchange.