Beijing again devalue the yuan against the dollar – The Point

China cut back sharply Wednesday the reference rate of the yuan against the dollar for the second consecutive day, highlighting the de facto devaluation of the Chinese currency. China’s central bank has lowered to 6.3306 yuan to one dollar, against 6.2298 yuan on Tuesday the central rate around which the renminbi (another name for the yuan) is allowed to fluctuate within a daily range of 2 % from either side. The institution had already reduced by almost 2% this reference rate Tuesday, the most sharp depreciation since 2005 and the end of the stowage of the yuan to the greenback.

The general opinion, this decision is intended to curb the slowdown in economic activity in the Asian giant, by boosting its foreign trade in difficulty. Particularly penalized by the high level of the renminbi (especially against the euro and yen), Chinese exports had collapsed by more than 8% year on year in July. The PBOC warned Tuesday that the sudden drop in the level of the yuan was “one action” and would not repeat as simply reflecting a new way to calculate it, taking greater account of changes in supply and demand on the market.

The yuan, future global reference currency?

However, the rate announced Wednesday by the central bank is still lower than the level reached by the Tuesday closing Chinese currency at the end of the day trading at 6.3232 yuan to one dollar. The authorities continue to supervise closely the convertibility of the yuan, remained unperturbed stable over the last four months against the US currency. Beijing, however, assured Tuesday that the devaluation corresponded to greater liberalization of the forex market, designed to bring the renminbi its real value.

Indeed, for analysts, the Chinese decision could be linked to the Beijing will see the yuan join the exclusive club of major world currencies of reference. Beijing and aims to expand the use of its currency outside its borders by obtaining its inclusion in the Special Drawing Rights, the unit of account of the International Monetary Fund currently has four currencies (dollar, euro, pound and yen) . But the Fund, which will make its decision in November, recently asked his conditions: the Chinese currency must therefore develop in accordance with market fluctuations and must be “freely usable”. For their part, the United States reacted Tuesday with the utmost caution to the devaluation, which could seal their exports, but partly meets their requirements on the convertibility of the yuan.