The Chinese currency, the yuan, hit its lowest level since it began trading internationally at 7.3815 units per dollar.
Pekín Relaxes Control on Yuan
Beijing eased its strict control over the yuan by weakening its daily reference rate beyond the 7.20 level for the first time in 18 months amid escalating trade tensions with the United States.
Theoretical Benefits of Yuan’s Weakness
A weaker Chinese currency is expected to boost exports at a time when U.S. President Donald Trump is imposing tariffs on them.
Government’s Intentions Unclear
It remains uncertain whether this move by authorities is a warning or not, as China has already deployed a set of retaliatory tariffs against the U.S.
Banco Popular de China Fixes Yuan
The People’s Bank of China set the ‘fixing’ (daily currency fixing) at 7.2038 per dollar, the highest since September 2023. For a currency pair, the yuan’s weakness means more units are required for one dollar.
First Time Crossing ‘Red Line’
This is the first time since Trump’s election in November that the fixing has surpassed 7.20, a level perceived by investors as a light warning line from official policy on currency management.
Potential Benefits and Risks
Weakening its currency could increase the attractiveness of Chinese exports, a key driver of growth now under greater pressure due to trade tensions. However, such a rapid drop in the yuan’s value by the government is challenging as it may amplify bearish bets on the economy, worsen capital outflows, strain U.S. relations further, and darken prospects for any trade negotiations.
