China's Economic Strategy and the Yuan
China is intentionally allowing the yuan to weaken against almost all major currencies to support its economy amid an escalating trade war with the United States.
Key Points
- The onshore yuan fell to levels observed during the global financial crisis against the US dollar, suggesting significant depreciation.
- Yuan also hit a 15-month low against a basket of trading partners' currencies.
- This devaluation strategy aims to make Chinese exports cheaper and more competitive internationally.
Monetary Policy Actions
- The People's Bank of China has continuously cut the reference rate for the yuan for six consecutive sessions.
- The rate adjustment is being done at a controlled pace, indicating a deliberate approach to gradually weaken the currency.
- The yuan's onshore trading is restricted to a 2% range on either side of the reference rate, underlining the managed currency mechanism.
Impact on Trade
- A weaker yuan enhances the attractiveness of Chinese products by making them cheaper compared to other countries' exports.
