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Chinese Yuan Fell to a Four-Year Low

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Chinese yuan fell to a four-year low after the central bank said the currency shouldn’t be measured by its moves against the dollar alone, a statement that is being interpreted as a sign it will allow further declines.

Exchange rates are a reflection of trade and investment with multiple countries and the market has to take into account the yuan’s fluctuations against a basket of currencies, the People’s Bank of China said on Friday. The China Foreign Exchange Trade System, which is run by the PBOC to facilitate interbank trading, published a new yuan index composed of 13 currencies, with the dollar accounting for 26.4 percent.

The yuan dropped 0.06 percent to close at 6.4591 a dollar in Shanghai, according to CFETS prices. It earlier declined to 6.4665, the weakest since July 2011. While the currency has retreated 3.9 percent against the greenback this year, it has advanced against 11 of 16 major currencies tracked by Bloomberg. The PBOC on Monday cut its reference rate by 0.21 percent to a four-year low of 6.4495.

“The latest move suggests the PBOC will allow weaker yuan fixings,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “The yuan is also under pressure as the U.S. is likely to hike rates this week.”

Weakening Signals

The central bank has lowered the reference rate, which limits the onshore currency’s moves to 2 percent on either side, on eight of the 10 trading days since winning reserve-currency status at the International Monetary Fund on Nov. 30. This fueled speculation that the authority is trying to release pent-up depreciation pressure before the Federal Reserve meets Dec. 15-16.

In Hong Kong’s offshore market, the yuan dropped 0.27 percent to 6.5497 a dollar as of 4:46 p.m. local time, extending a six-day decline to 1.6 percent, according to data compiled by Bloomberg. That took its spread to the onshore spot rate to 906 pips, above an average of 511 pips in the past month. The PBOC has been seen propping up the yuan’s exchange rate in Hong Kong periodically to narrow the difference.

The yuan’s one-month implied volatility, a gauge of expected price swings, surged 68 basis points on Monday to 6.72 percent, according to data compiled by Bloomberg. It earlier rose to 6.76 percent, the highest since August.

“With the wider spread between onshore and offshore yuan, the intervention risk in the offshore market is now higher and will be more likely to happen after the Fed meeting this week,” said DBS’s Ong.

Easing Controls

The PBOC on Friday also released guidelines on free trade zones in the provinces of Guangdong and Fujian as well as Tianjin city, granting companies registered in the area up to $10 million in capital-account convertibility quotas. In the Guangdong zone, individuals can borrow yuan funds from Hong Kong and Macau for property purchases within the area, the central bank said.

The introduction of a multi-currency index helps guide the public view of the yuan’s exchange rate, which will contribute to keeping the currency “basically stable at an adaptive and equilibrium level,” the PBOC said on Friday. That reinforces other recent statements suggesting an increased focus on broader moves rather than just against the dollar, according to a Goldman Sachs Group Inc. note. It forecast that the yuan will weaken to 6.6 a dollar in a year.

Referencing the yuan to a list of currencies doesn’t mean the exchange rate is pegged to that basket, according to an article published on the PBOC website and written by an unidentified CFETS commentator. China’s ample foreign-exchange reserves and trade surplus should keep the yuan reasonably stable at a reasonable level, it said.

“This underscores how China’s authorities are increasingly looking at the currency in a much broader context, moving away from a focus on the dollar, and so too should market participants,” HSBC Holdings Plc analysts included Paul Mackel wrote in a note dated Dec. 12. “But this does not mean China is going to formally target a currency basket like Singapore does. We see the yuan at 6.50 by end-15 and 6.70 end-16, amid greater two-way volatility.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Nigeria’s Annual Remittance Inflow Estimated at $24 Billion -CBN

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The Central Bank of Nigeria (CBN) has started focusing on how to better harness Nigeria’s huge diaspora remittances as seen in recent foreign exchange policy geared towards stimulating growth and fast-tracking economic recovery with foreign inflows.

On Thursday, the apex bank said it adjusted forex policy to service the economy with diaspora remittances and curb the excesses of few unscrupulous forex dealers.

In an effort to boost remittance inflows and foster an environment that would enable faster, cheaper, and more convenient flow of remittances back to Nigeria, the Central Bank of Nigeria, on November 30, 2020, announced a new policy initiative, which would help to support these objectives,” Godwin Emefiele stated.

Speaking further, he said, “Given the estimated annual remittance inflow of close to $24bn, which could help in improving our balance of payment position, reduce our dependence on external borrowing and mitigate the impact of COVID-19 on foreign exchange inflows into the country, the CBN sought to find ways to support improved remittance inflows into the country through official channels.

Based on this premise, we analyzed data on IMTO inflows into the country over the past year, and through our investigations discovered that some IMTOs, rather than compete on improving transaction volumes and create more efficient ways for Nigerians in the Diaspora to remit funds, resorted to engaging in arbitrage arrangements on the naira dollar exchange rate, which to a large extent resulted in a significant drop in flows into the country. It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittance flows meant for Nigeria, thereby undermining our Foreign Exchange management framework.

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CBN Forced Speculators, Hoarders to Sell Dollar Lower

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The Central Bank of Nigeria’s new forex policy has forced many speculators and hoarders at the Nigerian parallel market popularly known as the black market to start bringing out their forex at an even lower price.

The Naira to United States Dollar exchange rate moderated from N500 to N470 earlier this morning across the nation’s black market.

Similarly, the local currency exchanged at N620 to a British Pound, an improvement from N640 it was sold on December 1, 2020.

The story is not different against the European common currency as it gained slightly to N570, up from N580 it sold on Tuesday.

The improvements recorded against global counterparts was after the CBN directed that henceforth recipients of foreign remittance can now receive such fund in foreign currency (US Dollar) in cash or through an ordinary domiciliary account.

This means the apex bank planned to inject $20 billion estimated diaspora remittances per year into the real sector of the economy to force hoarders to sell their dollars or lose substantially and also to curb forex dealers in the habit of buying forex directly from the recipient’s domiciliary account because of old CBN policy that restricted them from withdrawing foreign currency in cash.

With this old policy out of the way, recipients of foreign remittances can now withdraw foreign currency and exchange it at any of the registered bureau de change operators across the nation at N392 to a US dollar. The bureau de change rate set by the central bank.

Investors King expects the policy to fast track the recovery process and enhance economic activity across the board, especially at a time when importers are looking for forex to bring in goods in order to meet the usual December high demand.

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Naira Exchange Rate Improves as CBN Plans to Flood Economy With $20 Billion Diaspora Remittances

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The Naira to US Dollar exchange rate improved by N10 to N490 on Tuesday following the Central Bank of Nigeria’s new directive that allows recipients of diaspora remittances to receive their fund in foreign currency (US Dollar) or via their ordinary domiciliary account.

The move was after the apex bank blamed the parallel market for the wide foreign exchange rate and cautioned analysts for using speculative rates as the real Naira/US dollar rate.

Therefore, the apex bank decided to inject $20 billion annual diaspora remittances into the real sector of the economy and hurt the activities of unscrupulous individuals at the parallel market.

Investors King expects this to gradually moderate the nation’s foreign exchange rate against global counterparts, deepen business activities and fast track economic recovery.

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