Date
27 July 2017
The renminbi has lost 3.5 percent against the US dollar in China in the last two days, and around 4.8 percent in global markets. Photo: Reuters
The renminbi has lost 3.5 percent against the US dollar in China in the last two days, and around 4.8 percent in global markets. Photo: Reuters

China lets yuan fall further, fuels fears of ‘currency war’

China’s currency fell to a four-year low on Wednesday, slumping for a second day, after a central bank devaluation on Tuesday.

The renminbi traded in China hit a low of 6.4510 per US dollar, its lowest since August 2011, and the currency fared worse in international trade, touching 6.59 to the dollar, Reuters reported.

Government sources believe the yuan may be allowed to slide even further to help the country’s exporters.

The currency has lost 3.5 percent against the US dollar in China in the last two days, and around 4.8 percent in global markets after the People’s Bank of China (PBoC), the central bank, changed the way it calculates the reference rate around which the yuan is allowed to trade in a two percentage point band.

The PBoC said it would now calculate the daily yuan fix, by taking more notice of market forces, including the closing price in the previous day’s trading session.

The devaluation sparked fears of a global “currency war” and accusations that Beijing was unfairly supporting its exporters, the news agency said.

But the central bank on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation.

“Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the PBoC said.

After the yuan slid further in early in Wednesday trade, currency dealers said Chinese state-owned banks were seen selling dollars on behalf of the PBoC to restrain the yuan’s fall.

The spot market rate recovered late in the day to close 6.3870, a rate which will influence Thursday’s setting.

“Apparently, the central bank does not want the yuan to run out of control,” said a trader at a European bank in Shanghai.

However, sources involved in the Chinese policy-making process said powerful voices within government were pushing for the yuan to decline further, suggesting pressure for an overall devaluation of almost 10 percent.

Tuesday’s yuan devaluation followed a run of poor economic data and resulted in the biggest one-day fall since 1994.

It raised market suspicions that China was embarking on a longer-term depreciation of its exchange rate that would make Chinese exports cheaper.

Data on Chinese factory activity growth and retail sales on Wednesday underlined sluggish growth in the world’s second-largest economy, while fiscal expenditures jumped 24.1 percent in July, reflecting Beijing’s efforts to stimulate economic activity.

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RA/CG

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