With China-US trade war looming, will Beijing be more hands off on exchange rates?
Analysts are calling for the central bank to stop using exchange rate levels as a monetary policy tool
Chinese analysts are calling on the government to give up its policy of maintaining a steady exchange rate for the yuan amid the looming threat of a trade war with the United States.
The currency in the offshore market dropped to nearly 6.53 against the US dollar in Monday, down for an eighth day and recording its longest losing streak since 2016, as US President Donald Trump escalated trade hostilities against China and China’s central bank announced policy easing on Sunday.
The central bank’s move on Sunday to release US$100 billion into the banking system, a decision that is set to add depreciation pressure on the yuan, and its setting of the daily yuan rate at he weakest level in over five months on Monday showed that Beijing is happy to let the yuan go.
“The central bank is willing to sit back and watch the yuan weakening against the dollar, or it is even intentionally driving down the exchange rate,” Xu Qiyuan, a fellow with the Chinese Academy of Social Sciences, wrote in a note.
For more than a decade, the People’s Bank of China has been committed to “keeping the yuan exchange rate basically stable at a reasonable and balanced level”, but some researchers are saying its time to change.