The yuan, the Chinese currency, fell this Monday to its lowest level in 11 years, in a market worried about the US-China trade war and its possible consequences for the world economy.
At the end of Monday morning in Asia, the yuan was 7.1425 to the dollar, a minimum since early 2008, although it recovered a little from the losses at the beginning of the day.
Global economic tension intensified in recent days, when China and the United States increased tariffs on their respective imports.
President Donald Trump also caused fear by ordering US companies to look for alternatives to production in China.
The yuan cannot be freely converted, being closely controlled by the Chinese government, which limits its movements against the dollar to a range of 2% above or below a figure set by the Central Bank on a daily basis, to reflect market trends and control volatility.
The people’s Bank of China gradually reduced that figure in recent weeks, and this Monday set it at 7,057 yuan per dollar.
The depreciation of the yuan makes Chinese exports cheaper and partly offsets the rise in US tariffs.
The depreciation of the yuan is obviously a buffer against US taxes, ” Bloomberg news Mitul Kotecha, an economist specializing in emerging markets at the Toronto-Dominion Bank, told Bloomberg news.
As long as China can ensure that the yuan’s weakness is well controlled, that is, that it does not cause significant losses, expect to see more currency depreciations.
The Chinese currency exceeded the threshold of 7 yuan per dollar in early August, shortly after the United States announced its intention to impose new tariffs on Chinese imports from 1 September.
That move led Washington to label Beijing a “currency manipulator.”US politicians have long accused China of artificially keeping its currency down to increase the competitiveness of its manufacturers.
But Washington had avoided up to now as a “manipulator” because that was seen as a major escalation of trade tensions between the two largest economies of the world.
In total and for more than a year now, China and the United States have imposed punitive tariffs on each other over US$ 360,000 million of annual trade.
After label China a “manipulator of currency”, the office of the us secretary of the Treasury, Steven Mnuchin said in a statement that this would encourage the International Monetary Fund to “eliminate the competitive advantages unfair created by the latest actions of China”.