After the United States designated China as a currency manipulator, the Chinese regime on Aug. 8 set the official reference rate for its currency to the lowest level in more than a decade.
China’s central bank, the People’s Bank of China (PBOC), set its official midpoint below the 7-yuan-per-U.S. dollar threshold—to 7.0039 yuan per dollar—for the first time since the global financial crisis in 2008.
The Chinese regime allows the yuan to trade within a range of 2 percent from a midpoint set each day.
On Aug. 5, Beijing let the yuan breach the 7-per-dollar level for the first time in 11 years, triggering concerns that the trade dispute with the United States will spill over into a currency war. That came days after President Donald Trump announced he would impose new tariffs of 10 percent on $300 billion of Chinese imports, to take effect of Sept. 1.
The U.S. Treasury Department on Aug. 5 announced that China would be designated as a currency manipulator, and that the United States “will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”
Since then, the yuan has shown signs of steadying at around the 7-per-dollar level.
“Today’s fixing is a message the People’s Bank of China has no definitive line in the sand but are only allowing the yuan to weaken on their terms and at a reasonable pace to mitigate possible outflows,” wrote Stephen Innes, managing partner at VM Markets.
“So the fear of rapid depreciation is fading.”
But as Sept. 1 nears, traders remain cautious about the possibility that the PBOC could continue to nudge the fix lower, especially if there is no reversal in Washington’s tariff position, Innes said.
‘Not a Very Smart Strategy’
Stephen Moore, distinguished visiting fellow at Washington-based think tank The Heritage Foundation and a senior adviser to Trump’s 2016 presidential campaign, said devaluing the yuan is a short-term strategy to neutralize the effects of U.S. tariffs.By keeping its currency undervalued, China can make its exports cheap and imports expensive. In that way, it can offset the effect of tariffs imposed by other countries.
“I’ve never seen any country in the history of mankind that got rich by devaluing its currency,” Moore told NTD, which, along with The Epoch Times, is part of Epoch Media Group.
Moore added that the United States has been frustrated that the Chinese regime hasn’t conducted trade talks in good faith, such as before Beijing reneged on provisions agreed over months of negotiations in May.
“I think there’s a very real sense that the hardliners in Beijing have really taken control of these negotiation processes,” he said. “And that is frustrating to Donald Trump, to the White House, to the American people, that China isn’t making some reasonable concessions to improve the relationship between the U.S. and China.”
Trump is unlikely to back down in trade talks, Moore said, given that the relationship has been lopsided in Beijing’s favor for decades.
While the trade war has affected both economies, China is bearing the brunt of the tariffs, Moore said.
“I think the economy of China could really implode if this trade war continues,” he said.
“The Chinese government is trying to masquerade the impact that these tariffs are having on the Chinese economy. ... But I would make the prediction that if this doesn’t get resolved in the next year, this could drive China into its first recession in 30 years.”
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