Will China and the United States Face an Exchange War?

today, 00:05 am

Author:

Catalina Apostoiu

For more than a month, China seemed to profit from the depreciation of the currency without worsening global criticism and massive capital withdrawals like those that accompanied the yuan depreciation episode in 2015 Now the discreet depreciation movements Bloomberg writes that the US president's accusations that China "manipulates" a piece of "tombstone" have arrived at the end of a six-week yuan slowdown, as a result of which the Chinese currency By his remarks, Trump suggested that the trade war between the United States and China extends to include the coins, allowing the Chinese to control their currency.

Now the question for Chinese officials is to know if they should use other measures to support economic growth in the face of a high oil export hurdle. Wang Tao of the UBS group is among those who predict that China will use other instruments than the exchange rate to mitigate the impact of the trade war

. "The central bank will take steps to stabilize the currency What can China do At this point, I think it can relax some credit and tax policies to support infrastructure investments," said M Tao.

Although the yuan had effects on the markets, the impact of the currency depreciation was limited

While the Chinese authorities are trying to determine in response to Trump's allegations, economists say that There are clear arguments for a cheaper Chinese currency.

According to Bloomberg Economics estimates, the yuan is overvalued by about 6.6%

Nevertheless, China has reasons to avoid

At the beginning of this decade, it has " burned "about $ 1 trillion in reserves to stem capital outflows. According to Morgan Stanley's estimates, in June of this year, cross-border trips totaled $ 10.7 billion.

The Chinese authorities have taken measures to ensure that the decline of the yuan does not become uncontrollable. At the end of last week, for example, after the decline in the currency began to pressurize Asian investors, signs of action to stop the slowdown appeared

. "The yuan will be more stable Always depreciate as a form of retaliation", anticipates the strategies of Goldman Sachs