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The Chinese currency, the yuan, has an exchange rate of 7 against the US dollar, an unprecedented level since the 2008 global financial crisis.
Markets are watching the movements of the yuan closely. especially because this currency is an essential element of the trade war between the United States and China.
The President of the United States, Donald Trump, insists that China unfairly maintains the yuan to boost its exports.
Beijing denies that this is true and seeks to keep it stable.
Who is right?
Downtrend
The first thing to remember is that the Chinese currency does not do it. It works like the others that are freely traded.
China's central bank sets a benchmark every day to guide markets on the trend that should follow the yuan.
By the end of October, he had fallen to 7, he is already buying nearly seven yuan with a US dollar (Thursday, the exchange rate was 6.97).
And although that's in 2017, he had already experienced a sharp decline with the arrival of Trump in power, the last In the global financial crisis, a dollar had been traded for 7 yuan in 2008.
We are now approaching this level.
We explain here some of the reasons.
China slows down, the US is growing
The weakness of the yuan is partly due to the strength of the dollar, which is why confidence in the US economy and the fact that the US Federal Reserve has gradually increased interest rates.
But that's also because the Chinese economy is slowing down.
It's up 6.5% at third quarter of 2018, the lowest rate since 2009.
According to the data of Capital Economics, this difference in the economic fortunes of the countries a "divergence of monetary policy", which generally causes controlled exchange rate movements of China.
Commercial War
Concerns about the American Trade War. this affects the Chinese economy also pushing the currency down.
In fact, the currency fell sharply after Trump stepped up pressure on China a few months ago.
Comments by US officials on how China's exchange rate should be handled in the context of the trade war also put pressure on the yuan.
But there is an irony.
A weaker yuan can help boost Chinese growth by making its exports more attractive to the rest of the world.
But if Beijing allows its yuan to continue to weaken, it risks provoking Trump's anger and intensifying the trade war.
If this happens, China's growth could slow down further, threatening the political and economic stability of the country.
This is something the Chinese government wants to avoid at all costs
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