Chinese yuan: the currency hits historic lows against the US dollar
The Chinese Yuan hit new record lows against the surging US Dollar.
The internationally traded yuan fell to its lowest level since data first became available in 2011.
China’s national currency also hit its weakest point since the 2008 global financial crisis.
It comes as the dollar continues to rise in value against other major currencies, after the US central bank raised interest rates again earlier this month.
Meanwhile, on Wednesday, major stock indexes in Asia fell sharply.
Japan’s benchmark Nikkei closed 1.5% lower, while South Korea’s Kospi ended on the day China’s central bank tried to slow the yuan’s fall by making it more expensive to bet against the yuan. currency. The People’s Bank of China (PBOC) has also reduced the amount of foreign currency banks must hold.
Many investors see the dollar as a safe place to put their money in times of trouble.
That helped push its value higher against other currencies, including the pound – which hit an all-time low against the dollar on Monday.
Also on Wednesday, the dollar hit a new 20-year high against a closely watched group of major global currencies.
The fall of the yuan is another example of the currency weakening due to the strength of the dollar.
It is also about the very different paths that China and the United States are taking in response to domestic economic problems.
The PBOC has cut interest rates to revive growth in an economy ravaged by Covid lockdowns, while the US Federal Reserve is moving aggressively in the opposite direction as it tries to control inflation.
Such a divergence is not entirely problematic, Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia, told the BBC.
The fall in the value of the currency may actually be helpful to exporters in China, he said, as it would make their goods cheaper and therefore could increase demand.
That said, exports only make up 20% of China’s economy these days, so a weak yuan won’t reverse fundamental domestic weakness caused largely by Beijing’s zero-Covid strategy and a real estate crisis, Mr. Capurso said.
A weaker currency can also lead to investors pulling their money out of the country and uncertainty in financial markets – something Chinese officials will want to avoid with the Communist Party Congress next month, when its President Xi Jinping is expected to get an unprecedented third. mandate in office.
The fall of the yuan weakened other currencies of developed economies in the region, notably the Australian and Singaporean dollar as well as the South Korean won.
Last week, the Bank of Japan stepped in to support the yen for the first time since 1998, after the currency weakened against the dollar.
Emerging markets in Asia are also vulnerable, as they sell raw materials and components to Chinese factories and are therefore increasingly dependent on the yuan.
Washington has in the past accused China of intentionally devaluing its currency to keep exports cheap and imports from the United States expensive.
While the strong dollar has rattled global markets, it is unlikely to deter the Fed from further raising rates.
“The strong dollar is working for the US market,” said Dimitri Zabelin of the London School of Economics’ foreign policy think tank.
“It will be a consideration but it won’t weigh as heavily as domestic concerns about inflation.”