ZIM currency news The economy of the southern Chinese province of Guangdong has been hit by a new and potentially deadly currency, the zongguan, which has triggered speculation that the central bank may need to consider raising interest rates to revive the economy.
The currency has been trading at more than 1,000 yuan ($1,521) a piece for more than two months, and is expected to be worth between 1,500 yuan and 1,800 yuan by mid-July.
But economists warn the move would have a far-reaching impact on the region, with the value of zong guan likely to plunge to around 2,000-3,000 Chinese yuan by the end of this month.
The country’s currency is pegged to the US dollar and has a history of fluctuating sharply against the greenback.
Analysts at HSBC, the world’s largest financial services company, say the currency’s sudden volatility has fuelled fears that the zu, a symbol of stability and prosperity, could fall as much as 30% against the US and other major currencies in a matter of days.
China’s central bank said in a statement on Friday that it was “monitoring” the market.
China has already started to pump some money into the economy, and the central government announced last week that it would gradually withdraw the central portion of the zuan currency, with only a portion of it reserved for foreign exchange purchases.
The move came after the central currency had risen by as much 20% against other major international currencies in the past year.
The yuan has since fallen back sharply against major currencies, and was down more than 8% at one point.
But HSBC’s analysts say it’s not clear whether the zuban will continue to depreciate as the central central bank is considering raising interest rate targets.
It would be very difficult for the central bankers to stop the depreciation in such a short period of time, and that would increase the risk of a sharp devaluation.
HSBC’s chief economist, Jiao Li, says the move could also put further pressure on the yuan, particularly after the country has begun to introduce a new set of currency reforms this year.
“If the zuiguan currency devalues further, then it could hit the country hard,” he said.
“That could have negative consequences for the country.”
HSBC is forecasting a 20% fall in the yuan against the dollar this year, while the other major banks are expecting an 8% decline.
A new yuan currency The move is likely to increase pressure on Beijing to start raising interest interest rates, which would also affect the foreign exchange market.
HSBC is expecting the yuan to decline by more than 20% this year against the other currencies.
A central bank official told Reuters news agency that the yuan will probably lose another 20% by the beginning of next year.
It is possible that the devaluation could be limited to just a small portion of zu by the time it is fully implemented, but that could increase the risks of a serious crisis.
“The yuan is very susceptible to the effects of a short-term currency devaluation, and if it falls below that level, it would have very negative consequences on the economy,” HSBC’s Mr Li said.