China’s central bank flatly rejected the charge from the United States that it is a currency manipulator, instead accusing Washington of adopting protectionist, unilateral actions which run counter to international rules and negatively affect the global economy. The US quickly labelled China after the yuan fell below the key threshold of 7 to the US dollar on Monday, a level the PBOC had previously defended. It was the first time it had fallen below the psychologically important level since 2008. This added a currency war element to the existing bilateral trade and technology conflicts. “China employs a managed floating exchange rate system that is based on market supply and demand and in reference to a basket of currencies. There is no such thing as currency manipulation [on the part of China],” the People’s Bank of China (PBOC) said in an statement on Tuesday. “China has refused to engage in a competitive devaluation despite the US escalating trade tensions from 2018, nor has it used [the exchange rate] as a tool to address [the trade conflict].” The move to allow the yuan to depreciate was justified by economic fundamentals and market sentiment, but analysts said that the decision by the PBOC not to defend the key threshold gave the Trump administration the perfect excuse to extend the bilateral dispute. “China had no intention to escalate trade tensions and particularly didn’t want it to spill over into the finance and investment areas,” said Yu Miaojie, a professor at Peking University’s national school of development. Yu argued that the depreciation was not deliberate, but rather a result of “market panic” triggered by last week’s threat by US President Donald Trump to levy a new 10 per cent tariff on the US$300 billion Chinese merchandise. China has refused to engage in a competitive devaluation despite the US escalating trade tension from 2018, nor has it used [the exchange rate] as a tool to address [the trade conflict] PBOC “In some sense, the PBOC didn’t want this depreciation. There’s a possibility that it will take measures to stabilise the exchange rate in the short term,” he added. China announced on Tuesday that it would sell 30 billion yuan (US$4.3 billion) worth of short-term securities in the Hong Kong market next week, a move that will absorb yuan liquidity and support the value of the Chinese currency. The US Treasury’s statement on Monday announcing the designation of China as a currency manipulator cited some paragraphs from the PBOC’s own statement on Monday in an attempt to prove that “China has taken concrete steps to devalue its currency”. “In a statement today, the People’s Bank of China noted that it ‘has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox, and take necessary and targeted measures against the positive feedback behaviour that may occur in the foreign exchange market.’ This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis,” said the US Treasury. Wang Jun, chief economist of Zhongyuan Bank, said the currency manipulator label was only an excuse for Washington to maximise the pressure on China to make concessions in the trade talks, which resumed last week in Shanghai. “It’s totally a political decision,” he said, as China does meet the three criteria set by the US Treasury to be designated as a currency manipulator. Wang said it is ironic that the US never complained when China defended the 7 level in recent years, but pointed the finger immediately after China withdrew intervention and allowed market force to push the yuan down. “Such a judgment is quite absurd. It reflects US fury at the deadlocked trade talks and [the fact that] it is running out of cards [in the negotiations],” he said. Such a judgment is quite absurd. It reflects US fury at the deadlocked trade talks and [the fact that] it is running out of cards [in the negotiations] Wang Jun The Chinese central bank set the midpoint of the daily reference rate for the yuan against the US dollar on Tuesday at 6.9683, down 458 points from Monday, reflecting the drop in the yuan’s value. The US Treasury said in its statement that it will engage with the International Monetary Fund (IMF) to eliminate the “unfair competitive advantage” created by China letting its exchange rate depreciate. However, the IMF said in the annual external sector report in July that Beijing’s handling of the yuan was “broadly in line” with the state of its economy in 2018. Also, the IMF did not find any indication that China had intervened in the foreign exchange market last year. China’s foreign exchange reserves declined by a modest US$67 billion in 2018, within the normal range after adjusting for changes in the valuation of reserve assets, returns on those assets and measurement margin of error, the report said.