Is China about to let the yuan weaken below seven to the dollar?
After years of ensuring its currency never breached the magical mark, analysts say Beijing might finally be ready to let go
It has long been an unwritten rule in the corridors of Chinese power that the value of the nation’s currency, the yuan, should never fall below seven to the US dollar. On more than one occasion in the past when it looked like it was about to, the central bank intervened and hoisted it back to higher ground.
Such is the People’s Bank of China’s commitment to the task that in December 2016 it threatened to punish “irresponsible media agencies” for reporting that the yuan had weakened past seven to the dollar, stating in no uncertain terms that its value was in fact 6.9666.
But two years on, with the country entangled in a trade war with the United States, and the government shifting its monetary policy to support growth at home, China could finally be ready to give up the ghost on its lucky seven marker.
Yu Yongding, a leading economist and former adviser to the central bank, said in an article published by the official China Securities Journal on Thursday that the PBOC should not intervene even if the yuan weakened below seven to the dollar as long as it maintained control of its capital account.
Liu Shijin, a member of the central bank’s monetary policy committee and senior government adviser, said in an article published in the official Economic Daily on Tuesday that it was wrong to stipulate a specific level for the yuan’s exchange rate.
“Some people argue that China should defend the seven and others argue it should let the yuan to break the seven,” he said. “[But] both schools neglect the importance of a dynamic balanced exchange rate mechanism, which is crucial.”
Equilibrium for the yuan’s exchange rate was not fixed but constantly changing, he said, giving another strong hint that Beijing is ready to give up the arbitrary marker.
