Published: Fri, August 09, 2019
Worldwide | By Lisa Hogan

China moves to limit yuan plunge after 'manipulator' designation

China moves to limit yuan plunge after 'manipulator' designation

Emerging economy central banks were caught in the crossfire on Monday as currencies across Asia slumped and South Korea's won hit a three year low.

On Tuesday, the onshore rate of the yuan reached 7.0699 per dollar in intraday trading, a 0.49 percent drop, before closing at 7.0321 per dollar.

In a Wednesday interview with CNBC, Kudlow said that "things could change with respect to the tariffs".

The renminbi exchange rate regime is a managed floating one based on market supply and demand and with reference to a basket of currencies, the PBOC said. But even beyond the actual currency moves, what the market seems to be reacting to in recent days is just a threat that both the US and China are digging in in this trade war.

The U.S. practice has violated its own quantitative standards for currency manipulation, and the Omnibus Foreign Trade and Competitiveness Act of 1988 cited by the U.S. Treasury has no specific standards and is rather arbitrary, Wang said.

China posted GDP growth at 6.2 percent in the second-quarter, its slowest pace in 27 years. "You have China right now, where we're really concerned with this trade deal". The Nasdaq was down nearly 3% to 7,777.45 points, while the S&P index was down more than 2% to 2,870.34.

Monday's tumble came after China allowed the value of its yuan to weaken to 7 per dollar, following President Trump's announcement that the USA would be implementing 10% tariffs on the remaining $300 billion worth of Chinese goods, effective September 1. Markets were on track to recover some of the losses on Tuesday.

Wu Ge, chief economist at Changjiang Securities, called the US Treasury's move "an imprudent decision".

"The United States disregards the facts and unreasonably affixes China with the label of 'currency manipulators, ' which is a behavior that harms others and harms oneself", said the People's Bank of China in a statement. That would add to downward pressure on the exchange rate.

The announcement came after Yi Gang, governor of the central bank, said Monday that "the yuan will remain a strong currency in spite of recent fluctuations".

Mei Xinyu, a researcher at the Ministry of Commerce's International Trade and Economic Cooperation Institute, said the renminbi is unlikely to depreciate sharply because its value is supported by the stable fundamentals of the Chinese economy and its longtime trade surplus, which is likely to continue to increase.

"Now that escalatory actions have been taken at the most senior levels of both governments, it's not clear how either side stands down", said Stephanie Segal, the deputy director of Simon Chair in Political Economy at the Center for Strategic and International Studies.

The latest US move came less than three weeks after the International Monetary Fund (IMF) said the yuan's value was in line with China's economic fundamentals, while the USA dollar was overvalued by 6% to 12%.

The implications for macroeconomic policies will be limited "so long as China avoids destabilizing capital outflow", S&P said.

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