The yuan is expected to continue to weaken this week as the Chinese authorities are keen to slow its appreciation in a bid to prevent an inflow of hot money.

The yuan tumbled again last week following its worst showing a week earlier. The currency ended at 6.8588 last Friday at the China Foreign Exchange Trading System, weaker than 6.8425 a week earlier.

Economists predict a weaker performance of the yuan this week to discourage speculators betting on a rising currency. With the yuan rising and China's benchmark interest rate higher than that of the United States, buying in yuan means a safe and stable investment option for foreign investors.

Chinese authorities last week announced revisions to foreign exchange rules which now require financial institutions to report changes in their clients' foreign exchange income and payments to regulators.

Market watchers said this would allow Chinese authorities to monitor capital inflows, and prevent hot money from entering the country. Hot money, or speculative money flow, is considered to be one of the causes of China's soaring inflation.

(Shanghai Daily August 11, 2008)