China is unlikely to "purposely weaken" its currency, the yuan, or renminbi (RMB), as it would go against the authorities' commitment to economic rebalancing and structural reforms, HSBC said on Monday.
Even dismissing the economic rationale behind the Chinese central bank favoring relative currency stability, there is another strong argument for this view. "It boils down to the significant size of China's economy and the 'currency war' deterrent of the RMB," according to a report from the banking giant.
China's share of global growth and trade has risen rapidly in the last few decades, which means a large RMB depreciation would be disruptive to global trade flows and international relations, it said.
In the face of a strong US dollar, the past two weeks have seen global foreign exchange markets undergo volatile fluctuations. The yuan has depreciated against the dollar, but appreciated against major currencies like the British pound, euro and Japanese yen.
"In 2015, we expect the RMB to continue on the path towards becoming more market-oriented and to being used more widely for global payments, financial investment and even reserve management, " HSBC said.
It forecast the dollar to trade with the RMB at 6.34 by the end of 2015.
The central parity rate of the RMB weakened by 50 basis points to 6.1311 against the dollar on Monday, according to the China Foreign Exchange Trading System.
