Chinese RMB Not a Safe Haven Currency, Study Finds

The Chinese offshore convertible renminbi
cannot currently be considered a safe haven currency, and neither does it
appear to be on the path of becoming one, a study published by the Federal
Reserve Bank of Dallas suggests.

The study analyses the trends of the RMB
against a set of currencies typically considered “safe haven” ones: the USD,
the JPY, the EUR, the GBP and the CHF between February 2011 and April 2016.

The value was observed in light of both
high frequency and low frequency movements, driven by the reaction of the
market to “contemporaneous changes” and “institutional aspects and long-term
objectives of the Chinese monetary authorities.”

The research finds that an increase in
market uncertainty is on average associated with a decrease in the value of the
RMB against the USD and the JPY, and at the same time, an appreciation of value
against the GBP and the EUR. No particular effects were observed on the CNH/CHF
pair rate.

However, looking at reaction to more
specific and more recent events, such as the SDR basket inclusion announcement,
the RMB value seems to decrease as uncertainty rises, the study highlights.

Therefore, the findings of the report
“suggest that recently, an increase in market uncertainty is no longer associated
with an appreciation of the renminbi relative to any of the traditional safe
haven currencies”.

Moreover, “during the recent period, the
relative weakening of the renminbi as uncertainty goes up is due to the high frequency
variation of the renminbi while the low frequency variation is generally
associated with renminbi appreciation as uncertainty increases”, the study
says.

Beatrice Bedeschi

beatrice@profit-loss.com

Twitter@Profit_and_Loss

Galen Stops

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