When the Chinese government tightened capital controls amid an accelerated yuan weakening in December, yuan payment value dropped by 15.1 percent month on month.
“Overseas merchandise buyers became reluctant to accept yuan against the backdrop of yuan depreciation,” said Shen Jianguang, chief economist at Mizuho Securities Asia in Hong Kong.
The yuan depreciated about 6.6 percent last year against the greenback. Many institutions have forecast a further retreat in the yuan exchange rate to the level of 7.3 to 7.5 this year.
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“The Chinese government also doesn’t want to see more yuan outflows, as they could be quickly converted into dollars and in return increase pressure on the exchange rate,” Shen said.
“Exchange rate stabilisation has overriden yuan internalisation to be the major task [of the People’s Bank of China], at least for 2017.”
The pressure on the yuan exchange rate has eased slightly in recent weeks as the impact of a US interest rate rise and US President Donald Trump’s fiscal expansion plan have dragged down dollar strength.
Moon said yuan use would keep growing in the long term. “Yuan internationalization will continue to benefit from major financial infrastructure milestones, such as the Cross-Border Interbank Payment System and additional yuan offshore clearing centers,” he said.