Investors take risks in rushing to purchase foreign currencies

Foreign currencies are placed next to 100 yuan banknote. [Photo/IC]

With the exchange rate of the renminbi to US dollar fluctuating, many Chinese residents are keen to purchase US dollars as an investment. Investors need to get used to the market and act rationally, says a comment in People's Daily:

As the renminbi has been rising against the US dollar for more than a decade, people have long been accustomed to a strong domestic currency. Thus a fall in the renminbi's exchange rate to the US dollar will almost certainly result in shocks to the market, especially as the US Federal Reserve has raised interest rates for the first time in almost 10 years.

However, it is rather irrational to purchase US dollars because of a small change in the short term. In an increasingly more marketized economy, exchange rate fluctuations are normal and investors need to get used to that. That applies to all currencies during their processes of going global.

For the Chinese currency specially, a comprehensive view of its exchange rate is needed. The renminbi has different exchange rates to a basket of major currencies, so while asserting that the renminbi is appreciating or depreciating, one needs to see all of them instead of looking at it only in relation to the US dollar.

In the first week of 2016, the renminbi has depreciated by 1.5 percent against the US dollar, but the major emerging markets' currencies have depreciated by 1.7 percent at the same time. In other words, the renminbi is still appreciating in value against a basket of global currencies and there is no need to be too worried about it.

Besides, while deciding whether to buy foreign currencies and which one or ones to buy, one needs to consider not only the exchange rate, but also the return on investment. Financial products in the US market are not cheap, the Dow Jones Indexes have risen by almost 300 percent since 2009 while the Nasdaq Indexes have risen by about 400 percent. Now financial product prices are falling and there is risk that they will bring losses that exceed the benefits brought about by the rising US dollar exchange rate.

It is good that Chinese residents are acquiring the habit of globally arranging their financial holdings, but they need to behave in a rational way.