China devalues yuan to lowest since 2008 financial crisis
Photo: Yuan falls to 2008 financial crisis low (news.cn)
Beijing is preparing for a protracted confrontation with Washington, using the currency as an instrument of influence, reports Bloomberg.
The yuan fell to levels last seen during the global financial crisis against the dollar.
The yuan also fell to a 15-month low against a basket of currencies from its trading partners.
Bets on the yuan's decline increased as the People's Bank of China eased its benchmark rate for the controlled currency for the sixth day in a row, indicating Beijing's desire to gradually weaken the currency to support exports. The fixed rate limits the domestic trade of the yuan to a range of 2% in both directions.
China's strategy
China's strategy of gradually weakening the yuan's fixing is wise, said Ju Wang, head of China FX and rate strategy at BNP Paribas SA. “This would ensure the yuan to steadily underperform the basket, an effective and not-so-disruptive way of handling the tariffs.”
China may shift its focus to exports to other trading partners as its trade war with the US shows no signs of ending. US President Donald Trump raised tariffs on China to 125%, even though he announced a 90-day pause on tariffs for dozens of trading partners. This came after Beijing imposed 84% tariffs on all US imports, vowing to “fight till the end” against US tariffs.
“The PBOC kept the dollar-yuan fixing steady to anchor sentiment, while weakening yuan basket index to improve China export competitiveness against the non-US trading partners,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank Ltd.
Currency manipulation
So far, China has refrained from aggressive currency devaluation, as a sharp weakening of the yuan carries high costs, despite its potential support for exports. This could undermine confidence in Chinese assets.
Trump has already accused China of manipulating its currency to offset customs tariffs. US Treasury Secretary Scott Bessent called China the worst offender in the international trading system and said Beijing should not devalue its currency amid customs tariffs.
“A large yuan depreciation would be too unsettling for markets and China’s trading partners, and we do not see that outcome as likely,” said Wei Liang Chang, strategist at DBS Bank.
“China could see a need to maintain goodwill with trading partners, amid an increasingly fragmented global trading system.”
On April 9, Donald Trump unexpectedly decided to pause tariffs on his largest trading partners. Announcing the suspension of tariffs, Trump increased tariffs against China to 125%. This was based, as he wrote, “the lack of respect that China has shown to the World’s Markets.”
Chinese companies selling goods on Amazon are preparing to raise prices for the US or leave this market due to the “unprecedented blow” from the tariff increase.
