Beijing weakens key yuan rate amid US criticism
China set the reference exchange rate for the yuan against the US dollar at its weakest level since September in response to the renewed criticism by the United States that Beijing may lack the resolve to let market forces determine the currency's value.
The latest conflict between the world's two largest economies was triggered by the semi-annual report of the US Treasury, released on Tuesday, that said China was resuming large-scale efforts to hold down its currency.
Just hours after the announcement, the People's Bank of China set its mid-point rate for onshore yuan at 6.1589 against the US dollar, the weakest level since September 11.
The mid-point rate is an anchor rate the central bank sets on the morning of every trading day; onshore traders are allowed to trade the currency at 2 per cent either side of the mid rate. In the spot market, onshore yuan weakened by 7 basis points to 6.2225 against the dollar at the close. Offshore yuan weakened 12 basis points, or 0.02 per cent, to close at 6.2271, the lowest since November.
"[The yuan] appreciated on a trade-weighted basis in 2013 but not as fast or by as much as is needed," the US Treasury said in the report to the US Congress on International Economic and Exchange Rate Policies.
Onshore yuan appreciated 2.9 per cent in 2013. But this year it has depreciated 2.8 per cent, owing to growing concerns over China's economic slowdown and the stability of its financial system.
Apart from setting its currency at a seven-month low, China also responded through Foreign Ministry spokeswoman Hua Chunying. In the daily press conference, she said the nation would "properly handle the relevant issues" and would push forward with reform of its yuan exchange rate mechanism.
"The Chinese central bank has given a clear signal that one-way appreciation is almost impossible going forward, although the renminbi is still on an appreciation track in a three-year scope," said Howhow Zhang, head of research at consultancy Z-Ben Advisors in Shanghai.
Despite the criticism of China, the US stopped short of labelling the country as a currency manipulator in its report.