No cause for alarm, free-market exchange rates fluctuate.

Recent weakness in the yuan is viewed as a natural step in the evolution toward becoming a world reserve currency.

The Year of the Horse started with the exchange rate of the Chinese yuan galloping downhill.

The once seemingly unstoppable appreciation of the yuan began going into reverse on February 18, touching a ten-month low of 6.1808 per US dollar last Friday. >>>More

The yuan has lost more than 2 percent against the dollar since January 14, when the yuan hit a 20-year-high of 6.0406.

This reversal goes beyond matters of mere high finance. The declining exchange rate has affected many ordinary consumers, much to their surprise.

Financial authorities and economists are interpreting the yuan's new trend as a sign that everything is under control.

The State Administration of Foreign Exchange called it a "normal" reaction amid recent cash withdrawals from emerging markets and said the possibility for large and continuous outflows of foreign capital is "relatively small." >>>More

The foreign-exchange watchdog said two-way volatility in the yuan is likely to increase as the Chinese market gains strength.

Economists attributed the depreciation to economic data pointing to slower industrial activity, to concerns about financial stability amid quick expansion of trusts and to withdrawal of foreign capital from emerging markets after the US Federal Reserve started paring back its monetary stimulus. >>>More

The message Chinese officials want to send is that the depreciation of the yuan is orchestrated and under control.

"We believe the recent yuan depreciation is supported by a shift in policy stance," said Zhu Haibin, JPMorgan's chief China economist. "In particular, the central bank would like to revert to a two-way volatility regime and to mitigate the near-term pressure of capital inflows."

The yuan was one of the best performing currencies in 2013, appreciating by 3 percent against the US dollar - about 7 percent in terms of the real effective exchange rate, or a weighted average exchange rate with major trading partners, according to the investment bank.

The fast appreciation of the yuan in real effective terms placed heavy pressure on exporters and changed market sentiment from 2012, when the yuan barely moved against the US dollar.

Because of fast appreciation and relatively high interest rates, banks in China purchased 2.78 trillion yuan of foreign exchange in 2013, nearly 6 times more than in 2012.

Over the same period, China's foreign-exchange reserves added another US$500 billion to US$3.82 trillion. >>>More

Last November, the People's Bank of China said that there is "no longer any benefit" from increasing the forex reserves.

Continuous currency inflows could damp the central bank's efforts to contain credit expansion and rebalance the economy. Excessive US dollar assets are seen as adding to financial risk, and a strong yuan hurts exporters.

By allowing a relatively sharp depreciation, the central bank may be testing new ground in its long-term aim to turn the yuan into an international reserve currency. >>>More

"The central bank never really wants too much yuan appreciation," said Yao Wei, an economist with Societe Generale. "What matters is how it manages the currency."

Yao said that to make a real difference, the central bank should take bolder reform steps, such as moving from daily to weekly or even monthly settings of the reference rate and widening the band in which the currency is allowed to trade against the dollar. >>>More

China currently allows the yuan to trade between 1 percent on either side of central bank's daily reference rate. Zhu with JPMorgan said he expects the band to double in the next two or three months, when the official rate and trading rate converge and when capital flow is balanced.

Most financial institutions are still predicting that the yuan will resume a stable appreciation this year.

The central bank signaled further currency reforms in four documents it issued in the past two weeks related to the newly formed Shanghai free trade zone. >>>More

They outlined operational details, including cross-border yuan lending and fully liberated interest rates for foreign currencies.

Foreign interests are watching closely.

European Central Bank executive board member Yves Mersch said last week that the currency may eventually become the lead reserve currency, rivaling the greenback, if China is efficient in reforming the economy and especially the financial sector.

A poll of 200 institutional investors conducted by State Street, the world's second-largest custodian bank, and the Economist Intelligence Unit found that 53 percent of respondents said the yuan may become a major reserve currency.

Yuan among most-used currencies

China's yuan surpassed the Swiss franc to become the seventh most-used world payments currency in January, global transaction services organization SWIFT said on Thursday.

With a market share of 1.39 percent, the yuan remained one of the top 10 most-used currencies for payments worldwide for the third consecutive month. It ranked eighth in December. >>>More

Yuan slide might be 'end of an era'

The yuan closed at an eight-month low against the dollar on Friday after a sharp mid-day dip. Economists said this volatility might signal the end of nearly a decade of gains for the currency. >>>More

Yuan's devaluation message

The unexpected fall of the yuan against the US dollar since mid February has gained far more attention than is justified by its size.

Given that many other emerging-market currencies are under great pressure from the reversal of capital flows triggered by the US withdrawal from its super loose monetary policy, it would be understandable if the Chinese currency follows suit as its economy slowed. >>>More

A record year for foreign renminbi exchange

The Cross-border RMB Index developed by Bank of China Ltd to measure renminbi activity in the global market rose by a record 56 points in the fourth quarter of 2013 year-on-year, BOC reported Tuesday.

The index stood at 228 in December, breaking the threshold of 200 for the first time. >>>More