Question

Find the most recent news or article relevant to the topic of "the balance of payments", such as capital control, the impact of BOP on exchange rate. Summarize the article (including references) and share your opinion.

Answer 1

Full article can be seen here: https://www.hellenicshippingnews.com/volatility-expected-for-chinese-yuan-as-experts-diverge-on-2019-outlooks/

Reference in APA format:

"Volatility expected for Chinese yuan, as experts diverge on 2019 outlooks", Hellenics Shipping News, retrieved from https://www.hellenicshippingnews.com/volatility-expected-for-chinese-yuan-as-experts-diverge-on-2019-outlooks/ on January 27, 2019

Summary

Balance of payment ("BOP") ia an interplay of three different accounts of the country namely current account, capital account, and financial account. This article examines the current state of BOP in China, expected BOP in the year 2019, reasons behind such expectations and impact on Chinese currency.

Chinese Yuan has started the year 2019 quite strong but it's expected to remain volatile for a good part of the year 2019. The reasons behind this are:

• Narrowing current account surplus
• Slow down in the Chinese economy
• Imports in excess of exports - China moving into net importer zone
• Tighter capital controls
  • The government had maintained a very tight capital control last year and continues to do so. It's becoming increasingly difficult for the money to leave China.
• Increasing liberalization
  • Domestic economy has been opened up for inflows of foreign capital
• US chinese tensions most likely not to escalate during the year - uncertainty prevails over the trade tensions
• Offshore corporate borrowing has increased

Some of these factors have managed to provide solidarity to the Chinese currency early this year. However China is likely to maintain a more liberalised view on current account but not on capital account. Needless to say, the domestic currency Yuan should move away from a controlled exchange rate regime. The currency has to be market driven and determined and the exchange rate policy has to be liberalised.

The currency will show volatility in this year and the quantum of volatility is governed by what kind of intervention Chines government is going to have in the economic matters and policies. China needs to adopt globalization and liberalization, move away from a controlled exchange rate regime to market driven exchange rates.