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China is sinking the yuan, its currency. It has fallen below the $ 7 mark for the first time since the 2008 financial crisis. The aim of the Beijing authorities is to keep the yuan at a low level in the face of escalating trade tensions with the United States.
The People's Bank of China set the tone, even before the opening of the stock market, by fixing the central rate of its currency at 6.9 yuan to the dollar. Since the Chinese currency is not fully convertible, the Chinese central bank sets a central rate of the yuan, the markets then decide on its value. Immediate consequence: the yuan lost 1.4% of its value this morning.
So far, the Chinese central bank has been careful to keep the level of its currency so as not to derail negotiations with the United States. But trade tensions with Washington rose a notch last Thursday with the surprise decision of Donald Trump , to tax all Chinese imports.
Support exports
The decision to let the yuan weaken is clearly aimed at supporting Chinese exports. And to cope with these new tariffs, the central bank could let its currency slip again. Quit to agree with Washington, which regularly accuses Beijing of manipulating its currency to gain commercial advantage.
When a currency loses its value, the products denominated in this currency see their prices decrease for buyers with other currencies, which favors exports. However, since 2015, Beijing has been seeking to stabilize the value of its currency to protect its foreign exchange reserves and prevent large outflows of capital.
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That year, the central bank had to intervene actively to curb the fall of its currency, drawing heavily in its colossal currency reserves to buy yuan ... and thus support the course.