Chinese yuan extends fall Thursday

The consensus view on Monday held that yuan devaluation was a sign of slowing Chinese economic growth.

Why did the government do this?

The move is believed to be part of a broader strategy to bolster exports and revive the local economy.

“In the past, an 8 percent rate would be the end of the world; now we are considering whether below-7 percent growth will cause big problems; and maybe in the future, we will start to worry about 6 percent“, he said. Exports in July fell by an unexpectedly steep 8.3 percent from a year earlier. “Many clients had question marks about China’s economy”, Tan said. Tan Jialong, chief executive of Tan Private Wealth Management Office in Shanghai, said that since May there has been an increase in queries from his clients in China about overseas asset allocation.

Has China tried anything else?

There are now around 4 million households in China that have private wealth of at least $1 million according to Boston Group Consulting, and private bankers say last month’s stock market turmoil had already prompted them to make more investments overseas. Still, most economists suspect the yuan’s drop won’t have much of a lasting impact. “A cut in required reserve ratio shouldn’t be ruled out”. A few months prior, it had done the same for banks to free up more of their money for lending. He said the statements alleviated concerns of a currency war. However, many find ways to circumvent this, reflected in the fact mainland Chinese citizens are some of the biggest foreign buyers of property in markets like Australia, the United States and Canada. The government has some ability to indirectly influence the exchange rate. A rate rise is a plus for the dollar.

A small number of nations, like China, have an exchange rate that is “fixed in some way or other by the authorities”.

The central bank aims to open up its currency market to foreign investors and extend market trading hours to help unify onshore and offshore yuan exchange rates, Yi said.

The spot rate is now allowed to trade within a range of 2pc above or below the official fixing on any given day, and had been consistently trading over 1pc weaker than the midpoint since March. But more often of late it has been following a strong-yuan policy, designed to encourage more imports and consumer spending.

The Standard & Poor’s 500 index was down two points, or 0.1%, at 2,084 as of 11:26 am Eastern time. It’s as though China is saying that it is not along for the ride as the Fed looks to tighten.

The move, widely seen as a devaluation, has sparked concerns of a “currency war” to boost China’s exports. This has allowed a slow depreciation of their currencies, making their exports more attractive. There may still be some pain to come, Huang said.

U.S. lawmakers have been quick to condemn the sudden drop in the value of Chinese currency as damaging for American businesses and workers, reviving an issue that was once one of the biggest sources of tension between the two world powers.

The central bank said that starting Tuesday, the daily target will be based on the yuan’s closing the previous day and information from traders about currency supply and demand.

However, the PBOC now appears to be moving to stem the slide and calm jittery markets.

Instead, it links the yuan’s value to a basket of currencies.

“If and when the velocity of the yuan’s fall significantly outpaces that of the won, its repercussions on local exporters and the overall economy could become overwhelming”, Seo said.