Yuan to move up and down as economy stabilizes: China central bank

Chief economist at the central bank, Ma Jun, said Sunday that Chinese yuan is more likely to move up and down in the near future as the nation's economy becomes more stable.

The central bank of China allowed their currency to simply fall in value August 11 and 12. Experts think that this could be the start of a chain reaction in other exchange rates. American legislators see the move as unfair because they believe that the yuan is stronger than what China wants the world to see. This drop in the currency can make an unfair export advantage for the nation and if others follow suit, it could mean the beginning of a currency war.

The drop of the yuan impacted US oil prices as well as other equities and investors are afraid of the fall of China's economy. It will also make Chinese exports cheaper, which can be an advantage for them.

A US Treasury official issued a warning against China that manipulations of their currency can pose challenge for the global market but he also said that it is unclear that the move to drop the yuan is directed towards that.

Ma Jun gave assurance that China will not participate in a 'currency war', dousing market fears as some Asian currencies were affected by the weakening of the yuan.

The People's Bank of China modified its guidance rate lower than normal by almost 2 percent, which is the lowest drop in three years. It was also the biggest fall that happened in a day since that devaluation in 1994 as China lined up its market and official rates. The modification was allegedly done in order to make the yuan more receptive to market forces.

The PBOC said that although the yuan is turning away from market expectations, the currency can still be considered strong because their trade in goods still provide them huge savings.

Developments in China's market will help improve the nation's campaign for the currency to be incorporated in the selected group of currencies that are being used by the IMF. Currently, the IMF's Special Drawing Rights basket contains the euro, dollar, Japanese yen and British pound.

If the yuan is included in the currency basket, it would boost the status of the yuan.