Wednesday , August 17 2022

The Chinese currency is down. Why?


The Chinese currency is at its lowest since 2010, at 7 yuan for one dollar. This move is fueling speculation of a deliberate move by Beijing to support its exports, amid a trade war with the United States by Donald Trump.

The Chinese currency hit the email on Monday, crossing the 7-dollar symbol threshold to the dollar, the lowest in nine years, in full resurgence of tension at the forefront of the trade war with Washington.

In the foreign market, the yuan traded slightly before 10:00 local time to 7.0203 to the dollar, down 1.15% from Friday, its lowest level since 2010.

One must know that Beijing currency is not fully convertible and the central bank of China sets a central rate daily. But markets have lowered the Chinese currency, dropping it to nearly 7.11 to a dollar before recovery.



More than 7 yuan per dollar. This symbolic threshold of 7 yuan has not been crossed for 9 years.

Why this depreciation?

President Donald Trump often accused in the past of Beijing of artificially devaluing its currency to support its exports. China and the United States have been engaged in trade for more than a year, resulting in the imposition of penalty rates at over $ 360 billion in annual trade.

Decrease in yuan favors Chinese exports and mitigates the impact of rising US tariffs on Chinese products.



Unlike most major currencies, the yuan is not freely convertible. It can only move against the dollar within a margin of 2% around a central rate determined daily by the central bank

The Chinese Central Bank chief said in March that he would not use it "Never" exchange "as a tool" in the trade war. The Chinese central bank said in a statement that the depreciation is "the result of market supply and demand and fluctuations in the international money market". but such a move could only take place with the consent of the institution.

According to Julian Evans-Pritchard of Capital Economics, the currency should drop below 7 yuan shows that the Chinese authorities "almost gave up all hope of a trade deal" with Washington. "We anticipated that the central bank would eventually devalue the yuan in response to trade tensions, but we did not expect it to happen so quickly.", added Evans-Pritchard, now considering a rate of 7.30 yuan per dollar at the end of the year.

The People's Bank of China on Monday set the tone before the start of business through repair the currency’s central rate at 6.9225 to the dollar, its lowest level since December 2018. "The repair raised the last hurdle, the PCB gave the green light to the yuan depreciation"says Ken Cheung, a currency strategist at Mizuho Bank in Hong Kong.

Donald Trump resurrected the trade war with Beijing on Thursday, announcing his intention to extend additional tariffs to almost all imports from China as of September 1. This concerns $ 300 billion of Chinese exports, previously unaffected by the additional customs duties, which will exceed 10%. Trump warned he could increase these overpayments if Beijing does not accept US demands, citing the possibility of going "over 25%".

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