China blames Donald Trump’s trade war tariff threat as yuan weakens below 7 to the US dollar
- First time yuan has dropped below level since offshore trading started in Hong Kong in 2010, and the lowest in the onshore market since April 2008
- Drop came only days after the US president threatened to impose a new 10 per cent tariff on US$300 billion worth of Chinese products from September 1
China’s yuan exchange rate weakened below the psychologically important level of 7 to the US dollar in both onshore and offshore markets on Monday, with the country’s central bank saying the drop was caused by “expectations of more tariffs on China”.
It is the first time that the yuan has dropped below the level since offshore trading started in Hong Kong in 2010, and the lowest in the onshore market since April 2008, signalling the possibility of a currency war with the United States.
The People’s Bank of China (PBOC) blamed the drop “to unilateral trade protectionism, as well as expectations of more tariffs on China”.
“The PBOC has the experience, confidence and ability to keep the yuan exchange rate basically stable at a reasonable equilibrium level,” the central bank added, without elaborating on what it considered an appropriate level.
PBOC governor Yi Gang played down the importance of keeping the yuan above 7 to the US dollar earlier this year, although Beijing has not allowed the yuan to break the barrier recently despite several events including the strong capital flight witnessed in 2016 that followed the stock market meltdown in 2015.
White House trade adviser Peter Navarro, one of the most aggressive voices in the Trump Administration against China, was quoted by Fox News on Sunday as saying that China must address its “seven deadly sins” to stop the trade war, one of which was to stop the manipulation of its currency.