Editorial | Washington’s claim of currency manipulation by China is fantasy
- Starting a currency war would seem a natural progression for Donald Trump with trade negotiations having all but collapsed and his campaign for re-election next year already under way
By default, the United States turns to the accusation of currency manipulation whenever it wants to heat up a dispute with a rival nation. US President Donald Trump predictably made that claim when China’s yuan on Monday dropped below the symbolically significant level of seven to the American dollar.
Global markets were quick to fall, stock prices dipping sharply and currencies in emerging economies following suit. Politics and the breach of psychological barriers aside, though, Beijing has little to gain from deliberate controls in the current economic climate and the revaluation is, more than any other factor, a natural outcome of circumstances.
The slide of the yuan was widely perceived internationally as a countermeasure by Beijing to the trade war being waged against it by the Trump administration. China is, after all, the only major economy that has capital controls, its currency not being freely convertible.
But the People’s Bank of China (PBOC) put forward a credible argument, pointing in a statement to tariffs and protectionism as the reason for the slide, a direct reference to the trade war. That, in turn, has contributed to a slowing of GDP growth year-on-year to 6.2 per cent in the second quarter from 6.4 per cent in the first.
Understandably, the bank said that it had the “experience, confidence and capacity to keep the renminbi exchange rate fundamentally stable at a reasonable and balanced level”.