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December, 6, 2016

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Renminbi gains strength against the US dollar

The central parity rate of the yuan against the US dollar strengthened on Monday after Yi Gang, vice-governor of the central bank, said on Sunday that the currency remained strong and stable in the global monetary system.

The People's Bank of China set the central parity rate of the yuan versus the dollar at 6.9042, ticking up from the 6.9168 on Friday, after the currency slid to an eight-year-low against the dollar in the past week.

The jump came after Yi's remarks on the yuan's exchange rate on Sunday, when he fended off concerns over the strength of the yuan and pressure for depreciation.

In an interview with Xinhua News Agency, Yi reaffirmed that the currency remained strong among major currencies.

Yi attributed the yuan's recent depreciation to external factors, including the impact of Britain's expected exit from the European Union, a likely interest hike in the near future in the United States and signs of improving US economic fundamentals.

"The yuan did not weaken much compared with other currencies in the emerging markets," said Yi.

Since a more floating exchange rate system for the yuan was adopted in August last year, the market should observe the yuan's fluctuation against a basket of currencies instead of focusing on its change against the dollar, according to Yi.

He sees long-term stability for the currency under the flexible floating plan, because, he said, the yuan has "strong and stable characteristics". He noted that in the past five years, the yuan's China Foreign Exchange Trade System index and its index against the Special Drawing Rights currency basket appreciated by 10.9 percent and 4.4 percent, respectively.

Yi's comment eased some concerns amid market expectations of a short-term depreciation of the yuan, according to Zhao Xueqing, an economist with the International Research Institute of the Bank of China.

The downward pressure on the yuan, mainly driven by a strong dollar, may continue next year, but the yuan will not depreciate at a drastic pace, according to Zhao.

"If it does identify outflow reaching a level that would spark a major financial crisis, the government will take necessary steps to fend off the risks," she said.

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