Chinese yuan falls after US currency report

Joe Mcdonald, Economic Writer

Update

2:38 PDT, Thursday, October 18, 2018

BEIJING (AP) – The politically sensitive yuan fell to a 22-month low against the dollar on Thursday after the US Treasury refused to qualify Beijing as a currency manipulator in the context of a tariff battle growing.

The yuan, closely watched, fell to $ 6.9411 for a dollar in the middle of the morning, bringing it closer to breaking the symbolically significant seven-point level of the greenback since December 2016. is slightly straightened in the afternoon.

The yuan, also known as the renminbi, or "people's money," has declined by almost 10 percent against the dollar since April, when Chinese economic growth slowed and US and Chinese interest rates declined. evolved in opposite directions.

This helps Chinese exporters face up to 25% tariffs imposed by US President Donald Trump in the Beijing technology policy dispute. But this increases the risk of igniting US complaints about Beijing's trade tactics.

Chinese officials have promised to avoid a "competitive devaluation" to boost exports. The governor of the central bank, Yi Gang, repeated his promise last weekend at a conference on finances in Indonesia. But they did not specify until the yuan could be allowed to fall in response to market forces.

On Wednesday, the US treasury's semi-annual monetary policy report said that China did not meet the criteria to qualify as a currency manipulator, a statute likely to give rise to sanctions. But he added that Beijing, along with Japan and Germany, was on a list of governments whose monetary policies would be closely monitored.

"The depreciation of the renminbi is reasonable and can be explained," said Zuo Xiaolei, former chief economist of Galaxy Securities in Beijing. Zuo noted that other currencies from developing countries have fallen by 20% or more at the same time.

"If the renminbi was appreciated instead of depreciating this year, then China would certainly be a currency manipulator," Zuo said.

While this helps exporters, a weaker yuan could also encourage an outflow of capital from the world's second-largest economy. This would increase borrowing costs at a time when communist leaders are trying to support sluggish growth.

The central bank is trying to make its exchange rate mechanism more efficient by strengthening the role of market forces.

The People's Bank of China sets the exchange rate every morning and allows it to fluctuate by 2% against the dollar during the day in tightly controlled exchanges. The bank can intervene to buy or sell currencies – or order Chinese banks to do so – to curb price fluctuations.

Most analysts expect the central bank to prevent the yuan from crossing the sensitive line of seven for a politically sensitive dollar.

Letting it fall too far "would risk Trump considering China as a currency handler," said Diana Choyleva, of Enodo Economics, in a report.

But some say that the central bank, convinced of being able to control all the side effects, could allow the market to gradually lower the yuan.

"Beijing's exchange rate policy calculation should change" if Trump and his Chinese counterpart, Xi Jinping, make no progress at a possible meeting at the top 20 economies of the top 20 economies said Julian Evans-Pritchard and Mark Williams of Capital Economics in a report.

The central bank attempted, in August, to discourage speculation by requiring traders to deposit deposits for contracts to buy or sell yuan. This allows the exchanges to continue, but increases the costs.

Beijing imposed similar controls in October 2015 after a change in the currency mechanism prompted markets to bet the yuan would fall. The currency temporarily stabilized but fell the following year.