China Winning the Currency War

China Winning the Currency War

The People’s Bank of China has reportedly let the renminbi slip to a 10-year low against the dollar on Tuesday. A cheaper yuan helps Chinese products mitigate the losses from US import tariffs imposed by President Trump.

The official yuan exchange rate was fixed at 6.9574 per dollar on Tuesday, 0.28 percent weaker than the previous level of 6.9377. This is the weakest yuan fix since 2008.

The last time the Chinese yuan fell to the level of 7 to 1 against the dollar was during the last financial crisis. “If the authorities are mindful of the potential impact on sentiment and capital flows, they have to gauge the potential negative impact on sentiment and overshooting beyond 7 if the level is broken,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore, as quoted by Reuters.

Bloomberg earlier reported that the United States will likely announce tariffs on all remaining Chinese imports by early December if talks between President Trump and Xi Jinping fail.

Trump has repeatedly accused China of weakening the renminbi. A weak domestic currency usually gives benefits to exporting countries, and amid the trade war between Washington and Beijing, it could help China in mitigating some losses.

The People’s Bank of China (PBOC) acting as the central bank sets a daily reference rate for the greenback against the yuan in the domestic market and allows it to trade in a range around that level. The fix partly depends on overnight market moves, but the PBOC has been accused of devaluing the yuan in the past.

Chinese Foreign Ministry spokesman Lu Kang said China and the United States have all along been in communication about exchanges at all levels, including a possible Xi-Trump meeting in Argentina, though he gave no details.

If the United States is not willing to promote win-win cooperation with China then China is fully confident in being able to continue with its reforms and develop itself, Lu added.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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