Daily Management Review

Value Of Yuan Against The US Dollar Reaches A 10 Year Old Level


10/31/2018




Value Of Yuan Against The US Dollar Reaches A 10 Year Old Level
Even while the trade war between the United States and China is escalating by the day, the China's yuan dropped to a historic low of 10 years against the dollar and is close to dropping past the politically sensitive level of seven yuan to a U.S. dollar.
 
At midday on Monday,  the yuan touched 6.9644 per dollar which was lower than the most recent low level that was attained by the currency in 2016. The level reached by the currency was the lowest since May 2008.
 
The constant weakness of the Chinese currency is one of the reason that fuelled the trade was and has been a constant issue of objection by US president Donald Trump. Earlier this month, the U.S. Treasury Department refused to name China as a currency manipulator but added that the situation was closely being monitored by it.
 
Despite the US-China trade war, a pledge not to engage in "competitive devaluation" to boost exports has been made by Chinese authorities.  The Chinese authorities are however making the yuan – which is controlled by the government, more responsive to the market which is potentially causing the drop in the value of the yuan.
 
While there is very little economic significance of the level of seven yuan, this level could trigger a rethink by the US on the exchange rate.
 
Mizuho Bank said in a report that Chinese authorities are likely to "stand their ground" and avoid a "capitulation beyond the 7 level".
 
Since April this year, there has been an almost 10 per cent drop in the value of the yuan against the dollar as coinciding with the slowing of the Chinese economy and the opposite movement in the US and the Chinese interest rates.
 
The devaluation of the yuan would partially help Chinese exporters to cushion some of the 25 per cent import tariff imposed by the Trump administration on Chinese goods worth billions of dollars.  But it also carries the risk of irking the US further about the trade tactics of Beijing.
 
"The last thing they will do is to escalate the tension by starting a currency war amid a trade war," Macquarie Group said in a report last week.
 
China did not meet the US criteria for being labelled as a currency manipulator, said a Oct. 17 report by the US Treasury. Had China been labelled as a currency manipulator, it could open the doors to more economic sanctions on the country. The Treasury however clearly mentioned that the currency policies of China, along with those of Germany and Japan would be closely watched by it.
 
Analysts are also of the opinion that a lower yuan could trigger an outflow of investments form the second largest economy of the world. that could result in increase in borrowing costs for the corporate when slow down in te Chinese economy is being attempted to be reversed by more lending.
 
(Source:www.abcnews.go.com)






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