Yuan value reflects need for protection in uncertain times
China’s currency is showing the strain as a trade war with the United States looms, and Beijing is right to enact safety measures for the economy
The United States has periodically accused China of being a currency manipulator. This is despite a multi-year strengthening of the yuan.
Among the accusers has been Donald Trump, both as president and when he was running as a candidate. Whatever the truth of the matter, the intention, seemingly bipartisan, has been to warn Beijing not to provoke Washington’s anger by incurring too many trade advantages with a weak currency and worsening the trade imbalance in China’s favour.
But with a looming trade war, the incentive not to anger Washington is being removed. A clear sign of that has been the fall in the value of the yuan for 14 straight days. The currency has never been allowed to float freely, though more leeway has been introduced in recent years to allow a greater role for market forces to determine its value.
Every morning, the People’s Bank of China sets a daily fixing rate around which the yuan can be traded within a range of 2 per cent up or down. The daily fixing is therefore a good indication of the central bank’s intentions and outlook.
