The exchange rate of China’s yuan to the dollar hit the symbolic threshold of 7 to 1 at the start of the week, fuelling further speculation about a deliberate move by Beijing to boost support for its exports while engaged in a trade war with the US, the world’s largest economy.
The current exchange rate has not reached the 7 to 1 threshold for nearly a decade. The depreciation of the yuan came only four days after the US said it would sanction more Chinese products.
In a statement, the Chinese Central Bank said it had “the experience, confidence and ability to keep the yuan exchange rate at a reasonable and balanced level, while the markets were playing the yuan down, falling to nearly 7.11 to the dollar early in the day, before a recovery suggesting that the central bank would intervene to calm the markets.
The US has in recent years taken Beijing to task since for pursuing a longstanding policy of artificially devaluing its currency to support its exports, which has played a major role in increasing the United States’ huge trade deficit.
Washington has demanded that the Chinese Communist Party immediately enact structural reforms to ban subsidies for state-owned enterprises and to immediately halt the pirating of American intellectual property, while at the same time agreeing to open the Chinese import market to more American products, especially agricultural products.
China’s response to Washington’s demands has included an order to Chinese companies to stop purchasing American agricultural products and threats from the ruling Communist Party that it would target US farmers that are highly dependent on the Chinese market.
The White House plans to extend its already existing tariffs on imports from China on 1 September.