Business
RMB valuation and limits of traditional exchange rate models | The Express Tribune
Global focus is on the Chinese currency, sparking debate over whether it is overvalued or undervalued
Foreign exchange reserves have started increasing on the back of recent loans by the AIIB, World Bank, and ADB. The reserves stand over $8.2 billion, and the IMF board is also expected to approve a $700 million tranche this Thursday. photo: file
KARACHI:
China’s merchandise trade surplus surged by $111.7 billion in November, reaching an impressive $1.08 trillion for the first 11 months of the year, a 22.1% increase compared to the same period of last year, according to official data. Western media has described the massive trade surplus as “remarkable,” but also warned that it could be “unsustainable,” citing concerns over China’s undervalued renminbi (RMB).
The soaring surplus has raised eyebrows among economists, many of whom have called on Beijing to allow the renminbi to appreciate more gradually over the next five years. They argue that a stronger currency could help boost China’s imports while providing relief to global competitors in Europe, the US, and other regions, who are increasingly losing market share to Chinese exports.
Global market attention has long been fixed on the trajectory of the renminbi, with renewed debate over whether the Chinese currency is overvalued or undervalued. Recent studies, relying on traditional neoclassical exchange-rate models, suggest that the RMB is deviating from its “equilibrium value.” However, economists warn that these conclusions are heavily influenced by the analytical frameworks used and may fail to account for the crucial role that modern financial forces play in shaping currency values.
Judging whether an exchange rate is misaligned is not simple. It’s inherently complex. Conventional neoclassical frameworks – such as the purchasing power parity (PPP) and the Balassa-Samuelson hypothesis – focus on real-economy fundamentals, including productivity, prices and the current account. These models generally view capital flows and foreign-exchange trading as short-term reactions to real economic factors, rather than as independent forces that can influence long-term exchange-rate trends.
That assumption is increasingly called into question in modern highly financialised global economy. Annual foreign-exchange trading volumes are now many times larger than global trade in goods and services, suggesting that frameworks focused primarily on trade balances and relative prices may be far removed from market realities.
Conversely, (post)-Keynesian approaches argue that capital flows, financial cycles and shifts in expectations lie at the heart of exchange-rate movements. While these approaches do not dismiss the importance of the real economy or the current account, they contend that under modern financial systems, capital movements can influence both short-term fluctuations and long-term currency trends. Exchange rates implied by PPP, they argue, may never be reached and can diverge persistently in one direction.
The two approaches, according to economists, need not be viewed as mutually exclusive. Yet continued reliance on a purely neoclassical lens risks producing serious misjudgments, particularly during periods of heightened financial volatility. A comprehensive analysis, they argue, must account for both real-economy fundamentals and financial forces, with the latter often playing a decisive role.
The renminbi clearly exemplifies this debate. When China’s position in the financial cycle is taken into account – rather than focusing narrowly on the current account or productivity – recent movements in the currency appear less anomalous. Once financial-cycle dynamics are incorporated, the RMB may not deviate significantly from any plausible notion of an “equilibrium exchange rate”, assuming such a benchmark exists at all.
Neoclassical exchange-rate theory is based on several core assumptions: efficient markets, rational agents, flexible prices and wages, and the neutrality of money. Within this framework, trade imbalances are expected to self-correct through exchange-rate adjustments. A country running a persistent current-account deficit should see its currency depreciate, while surplus countries should experience appreciation. Over time, exchange rates are assumed to converge towards levels determined by real fundamentals.
However, real-world evidence frequently contradicts these predictions. The United States, for example, has run large and persistent trade deficits for decades without experiencing a corresponding long-term decline in the dollar. In the 1990s, the US trade deficit widened even as the dollar strengthened. Similarly, China’s own experience has shown that the relationship between the RMB and the current account has been far from stable, despite the presence of capital controls.
(Post-)Keynesian economists argue that these anomalies reflect the growing dominance of financial forces. According to data from the Bank for International Settlements (BIS), daily global foreign-exchange trading reached about $7.5 trillion in 2022, dwarfing annual global trade flows of roughly $32 trillion. In such an environment, exchange rates are shaped primarily by financial transactions, capital flows and expectations rather than by trade fundamentals alone.
Under this view, exchange rates are not anchored to a stable long-run equilibrium. Instead, they reflect the cumulative outcome of short-term movements driven by investor sentiment, risk perceptions and shifts in global liquidity. Capital flows can sustain currency misalignments for extended periods, and there is no automatic mechanism ensuring that current-account imbalances are corrected through exchange-rate changes.
China’s post-2005 experience offers a case in point. Following reforms to the exchange-rate regime, the RMB underwent a period of nominal appreciation alongside rising domestic prices, resulting in sustained real effective exchange-rate appreciation. This pattern is difficult to reconcile with PPP-based mean-reversion models but is consistent with a financial-cycle perspective, in which capital inflows, rising asset prices and credit expansion reinforce one another.
More recently, the picture has shifted. Despite steady improvements in manufacturing capability and productivity upgrades, the RMB’s real effective exchange rate has depreciated. BIS data show that between January 2022 and October 2025, the RMB’s real effective exchange rate declined by around 16%. This outcome runs counter to predictions based on the Balassa-Samuelson hypothesis, which would expect productivity gains to translate into real appreciation.
Economists attribute this divergence to China’s position in a downswing of the financial cycle. As credit growth slowed, domestic demand weakened and price pressures eased, the extent to which productivity gains could support currency strength is limited. At the same time, reduced incentives for holding RMB-denominated assets contributed to periods of depreciation against the dollar.
Signs are now emerging that the financial-cycle adjustment may be nearing its end. As conditions stabilise, incentives for capital allocation into RMB assets are beginning to recover, a shift that has already been reflected in recent currency movements. Against this backdrop, analysts argue that claims of significant RMB undervaluation based solely on traditional models may be overstated.
The broader lesson, economists say, is that exchange-rate analysis must evolve with the structure of the global economy. In an era dominated by finance, capital flows and expectations, frameworks that marginalise these forces risk misreading both the causes and consequences of currency movements.
The writer is an independent journalist with a special interest in geoeconomics
Business
Gold, Silver ETFs Sink Up To 10% As Precious Metals Rout Deepens; What Should Investors Do Now?
Last Updated:
Silver and gold-linked commodity ETFs extended their slide, falling as much as 10%, tracking sharp drop in precious metal futures on the MCX
Silver ETFs
Silver and gold-linked commodity ETFs extended their slide on Friday, falling as much as 10%, tracking a sharp drop in precious metal futures on the MCX for the second straight session.
The decline came amid a global sell-off in technology stocks and a strengthening US dollar, which wiped out most of the gains from a brief rebound earlier in the week.
Silver ETFs lead losses
Kotak Silver ETF was the worst hit, tumbling 10%, while HDFC Silver ETF, SBI Silver ETF and Edelweiss Silver ETF declined about 9% each. Bandhan Silver ETF limited losses to around 6%.
Among gold-linked funds, Angel One Gold ETF slipped 8%, while Zerodha Gold ETF fell about 5%.
Volatility persists after steep correction
Hareesh V, Head of Commodity Research at Geojit Investments, said gold and silver continue to witness heightened volatility after last week’s sharp selloff. The correction was driven by hawkish US Federal Reserve expectations following Kevin Warsh’s nomination, a stronger dollar, and steep margin hikes by the CME that forced leveraged positions to unwind. Profit-taking after record highs further amplified price swings, keeping sentiment fragile.
He advised bullion investors to remain patient and avoid reacting to short-term volatility driven by margin hikes, profit booking and policy uncertainty.
“Gradual, staggered accumulation can help manage timing risks, as long-term fundamentals such as geopolitical tensions, central bank demand and currency pressures remain supportive. Closely tracking the US dollar and upcoming Federal Reserve signals is crucial in this phase of elevated volatility,” he said.
MCX futures slide sharply
In Friday’s session, MCX silver futures for March 5 delivery plunged 6%, or ₹14,628, to ₹2,29,187 per kg. Gold futures for April 2 delivery also weakened, slipping ₹2,675, or 2%, to ₹1,49,396 per 10 grams.
Globally, silver remained extremely volatile. Prices rebounded as much as 3% after plunging 10% to below the $65 level, a more than six-week low. Despite the bounce, silver was still down nearly 16% for the week. In the previous week, it had fallen 18%, marking its steepest weekly decline since 2011.
Margin hikes add pressure
The selloff spilled into domestic ETFs after sharp margin hikes in precious metal futures. On Thursday, commodity-based ETFs dropped as much as 21%, led by silver ETFs, while gold ETFs declined up to 7%.
Margins on silver futures were raised by 4.5% and on gold futures by 1% effective February 5, followed by an additional hike of 2.5% on silver and 2% on gold on Friday. As a result, total additional margins now stand at 7% for silver futures and 3% for gold futures from February 6.
“Markets often see sharp corrections after extended rallies. Broader risk sentiment and geopolitical cues can trigger profit booking in commodities, especially where positioning has been crowded,” said Nirpendra Yadav, Senior Commodity Research Analyst at Bonanza.
However, he added that industrial demand for silver remains strong, with a tight global supply environment and persistent deficits supporting prices over the medium to long term. Short-term intraday swings, he said, do not alter the long-term outlook.
Trade deal, macro cues in focus
Ross Maxwell, Global Strategy Operations Lead at VT Markets, said the India–US trade deal could improve risk appetite by easing supply-chain frictions and reducing tariff-linked inflation pressures.
“In this context, gold and silver will balance lower trade tensions against ongoing macro uncertainty. A clearer trade outlook can reduce risk aversion, limiting upside in precious metals,” he said.
Maxwell added that gold remains supported by concerns around inflation, currency stability and geopolitical risks, making it attractive as a strategic hedge rather than a short-term trade. Silver, he noted, also benefits from industrial demand, meaning improved global trade expectations could lend support through stronger manufacturing activity.
“While reduced tariffs may dampen fear-driven buying, both gold and silver are likely to remain structurally firm as long as economic and policy uncertainty persists,” he said.
Click here to add News18 as your preferred news source on Google.
February 06, 2026, 12:08 IST
Read More
New Delhi: The Reserve Bank of India (RBI) has kept the repo rate unchanged at 5.25 PERCENT in its February 2026 monetary policy review, maintaining a neutral policy stance as inflation pressures remain under control and economic growth stays stable.
The decision was announced by RBI Governor Sanjay Malhotra after the three-day meeting of the Monetary Policy Committee (MPC), which began on February 4 and concluded on February 6.
Focus on Inflation and Growth
The MPC chose to pause after a series of rate cuts over the past year, preferring to evaluate how earlier policy changes are affecting borrowing costs, liquidity, and overall economic activity.
Inflation has remained within the RBI’s comfort range, giving policymakers room to maintain the current rate while monitoring global economic conditions and domestic demand.
The RBI’s monetary policy framework aims to keep inflation close to 4 PERCENT with a tolerance band of 2–6 PERCENT, which continues to guide interest-rate decisions.
Impact on Loans, EMIs, and Markets
Since the repo rate directly influences borrowing costs for banks, the decision to keep rates unchanged means loan EMIs are unlikely to change immediately. However, banks and financial markets will continue to watch RBI signals on liquidity and future rate moves.
The central bank has already reduced rates by about 125 basis points since early 2025, which helped support economic growth while inflation eased.
What Happens Next
Economists believe the RBI may now focus more on policy transmission and liquidity management rather than further rate cuts in the near term.
Governor Malhotra is expected to outline the RBI’s outlook on inflation, growth, and financial stability in the coming quarters during the post-policy press conference.
Business
$2 trillion wiped off crypto markets! Bitcoin halves since October; investor company shares sink to multiyear lows – The Times of India
Cryptogiant Bitcoin has suffered sharp losses since the beginning of 2026, tumbling over 20%. The digital currency has given up almost half of its value since October’s record peak of over $124,000, sliding to $67,000, now worth less than it was at the start of President Donald Trump’s second term. Bitcoin is often pitched as “digital gold” as its returns are just like gold, offering no dividends or profits and price driven by what investors are willing to pay. The world’s largest cryptocurrency was last trading 1.64% higher at $64,153.24 after a volatile session that saw prices swing between gains and losses, having earlier touched a low of $60,008.52. The global crypto market has lost $2 trillion in value since peaking at $4.379 trillion in early October, with $800 billion wiped out in the last month alone, Reuters reported. Bitcoin has declined 28% so far this year, while ether has lost nearly 38% over the same period.As the asset slid, shares of companies holding bitcoin and other digital assets also came under heavy pressure amid ongoing turbulence in the cryptocurrency market, fuelling concerns about stress across the sector. Publicly listed firms that piled into crypto last year, encouraged by US President Donald Trump’s supportive stance, are now grappling with intensifying market challenges.The decline comes as uncertainty over Federal Reserve rate cuts and concerns over AI company valuations weigh on risk assets, pushing bitcoin to its lowest level since November 2024.Strategy shares plunge to multi-year lowsMicroStrategy’s bitcoin-focused arm, Strategy, has seen shares tumble from $457 in July to $111.27 on Thursday, marking their lowest level since August 2024. The stock was last down more than 11%, according to Reuters.In December, Strategy cut its 2025 earnings forecast, citing weak bitcoin performance, and announced plans to create a reserve to support dividend payments. The company now expects full-year earnings between a $6.3 billion profit and a $5.5 billion loss, down from its earlier forecast of $24 billion.Other notable bitcoin buyers have also been hit. UK-based Smarter Web Company (SWC.L) fell nearly 18%, Nakamoto Inc (NAKA.O) lost almost 9%, and Japan’s Metaplanet (3350.T) dropped over 7%.Bitcoin wipes out gains since Trump’s electionBitcoin itself is down nearly 28% since the start of the year, with recent selling accelerating after Trump nominated Kevin Warsh as the next Federal Reserve chair. Analysts cited by Reuters say that Warsh’s appointment could lead to a smaller Fed balance sheet, a negative for speculative assets like crypto.Bitcoin has erased all gains made since Trump’s election, when he pledged to overhaul policies toward digital assets. The cryptocurrency last traded at $67,651.“As Bitcoin continues its slide below the psychological barrier of $70,000, it’s clear the crypto market is now in full capitulation mode,” said Nic Puckrin, investment analyst and co-founder of Coin Bureau. “If previous cycles are anything to go by, this is no longer a short-term correction, but rather a transition… and these typically take months, not weeks,” Reuters cited the expert.Broader digital asset holdings also hitCompanies holding other tokens have been affected as well. Alt5 Sigma, which stocks the Trump family’s WLFI token, fell 8.4%. SharpLink Gaming, holding ether, dropped 8%, while Forward Industries, which holds solana, fell nearly 6%.Bitcoin fell to a low of $63,295.74 on Thursday, its weakest since October 2024, before rebounding slightly to $63,525, marking its largest one-day drop since November 2022. Approximately $1 billion in bitcoin positions were liquidated over 24 hours, according to CoinGlass data.Fed concerns and investor outflowsTrump’s Fed pick, Kevin Warsh, has added to market fears. Analysts say investors worry that a smaller balance sheet will remove liquidity support for speculative assets.“The market fears a hawk with him,” Manuel Villegas Franceschi from Julius Baer told Reuters. “A smaller balance sheet is not going to provide any tailwinds for crypto.”Deutsche Bank analysts highlighted massive outflows from institutional ETFs as a key driver of the decline. US spot bitcoin ETFs saw over $3 billion withdrawn in January, following $2 billion and $7 billion outflows in December and November, respectively. “This steady selling in our view signals that traditional investors are losing interest, and overall pessimism about crypto is growing,” they said.Tech sector weakness piles pressure on crypto segmentThe slide in cryptocurrencies has been compounded by a broader downturn in tech stocks, particularly software companies linked to AI. Bitcoin and other tokens have historically tracked risk appetite in technology markets, and the current weakness has intensified losses.“Concerns are being raised around the crypto miners and whether we could be looking at forced liquidations if prices continue to fall, which could lead to a vicious cycle,” said Jefferies strategist Mohit Kumar, as cited by Reuters. The analyst further added that crypto “should never be more than a very small portion of a portfolio, but its heavy retail ownership adds to overall market risk.”
France’s LVMH to propose Ariane Gorin for board seat at April AGM
Gold, Silver ETFs Sink Up To 10% As Precious Metals Rout Deepens; What Should Investors Do Now?
Is India the next big luxury fashion market?
-
Business1 week agoPSX witnesses 6,000-point on Middle East tensions | The Express Tribune
-
Tech1 week agoThe Surface Laptop Is $400 Off
-
Tech1 week agoHere’s the Company That Sold DHS ICE’s Notorious Face Recognition App
-
Tech4 days agoHow to Watch the 2026 Winter Olympics
-
Tech6 days agoRight-Wing Gun Enthusiasts and Extremists Are Working Overtime to Justify Alex Pretti’s Killing
-
Business1 week agoBudget 2026: Defence, critical minerals and infra may get major boost
-
Entertainment1 week agoPeyton List talks new season of "School Spirits" and performing in off-Broadway hit musical
-
Fashion7 days agoItaly’s Brunello Cucinelli debuts Callimacus AI e-commerce experience