The prospect that China would use currency devaluation to retaliate against any escalations of U.S. tariffs loomed in the aftermath of a sharp drop in the country’s stock markets.
But one gauge of the Chinese currency’s strength indicates no efforts to devalue this year.
On Wednesday, the central bank set its reference rate for the yuan at 6.4586 to the dollar, 0.5% weaker than Tuesday’s rate and the lowest since January.
“One would imagine that China will be thinking about currency devaluation again,” said Rabobank senior Asia-Pacific strategist Michael Every in a research note. The yuan doesn’t trade freely, and analysts are often left wondering what the People’s Bank of China has in mind for the currency. Devaluation is one of Beijing’s most powerful economic tools.
China imports far less from the U.S. than it exports to it and could use depreciation as an alternative way to retaliate against tariff increases.
Though the U.S. dollar has risen 2% against the yuan this year, the trade-weighted measure of the yuan published by the PBOC, the CFETS index, has risen since trade tremors began with the announcement of U.S. steel and aluminum tariffs in March.
The yuan is higher this year against the euro, yen, British pound, Australian dollar and Korean won. Though the dollar exchange rate is most commonly referenced, those currencies make up around 46% of the basket used to calculate the index, versus the greenback’s 22% weighting.
The CFETS index hit a two-year high in May and was a fraction below that level on June 15, the last weekly fix for the trade-weighted measure.
The lack of any broad depreciation in the yuan suggests that China isn’t attempting to gain an unfair advantage over its trading partners in the foreign-exchange market.
That isn’t a recent phenomenon. The Bank for International Settlements tracks countries’ real exchange rates, adjusted for inflation. It shows the yuan has risen around 90% against 61 international currencies since its series began in 1994.
这并非是最近才出现的现象。国际清算银行(Bank for International Settlements)追踪各国实际汇率，并根据通胀因素进行相应调整。该行的数据显示，自1994年汇改以来，人民币兑61种国际货币已累计升值约90%。
Recall what happened the last time China cut the yuan’s value: A rapid weakening in 2015 sparked capital outflows as investors attempted to remove money from the country and avoid further depreciation. The government responded by crimping the ability to move money out of China.
Devaluing again could damage Beijing’s long-term goal to open its financial markets and promote the yuan as an international currency, according to Bilal Hafeez, a strategist at Nomura.