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Yuan’s trend shows Beijing has initiative in trade war
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Yuan’s trend shows Beijing has initiative in trade war

Views:0     Author:Site Editor     Publish Time: 2019-08-15      Origin:Site

The US decision to label China a so-called currency manipulator is likely to push the yuan's ongoing internationalization.

Although China has overtaken the US to become the world's largest trading nation, the share of the yuan in global central bank reserves was only 1.84 percent in the second quarter of 2018, as the US dollar remains the major global reserve currency. China clearly wants the yuan to play a bigger global role, but the US sees a threat from the yuan's internationalization.

The ongoing trade war is prompting China to make strategic adjustments for a possible decoupling of its economy from the US. In that scenario, China is likely to reduce its dependence on the US dollar and push the yuan's global use. The process of the yuan's internationalization is likely to trigger more conflicts between Beijing and Washington.

If the two countries are destined to come into conflict over the yuan's internationalization, the odds are: the sooner, the better. 

US President Donald Trump has long talked about labeling China a currency manipulator. It is unavoidable that issues will surface in the process of the yuan's internationalization.

Designating China a currency manipulator has long been an important part of US deterrence to slow down the yuan's internationalization process. But once the US announced that step, its deterrent force substantially weakened. Now China can push the yuan's internationalization without misgivings.

On Monday, the yuan slip past 7 per dollar for the first time since 2008, but it was just a normal market reaction to Trump's latest tariffs threat. The Chinese government did not manipulate its currency and it allowed the yuan to fall to reflect a supply-demand balance on the market. China holds the largest foreign-currency reserves in the world. It would be very easy for the government to support the yuan with its foreign-currency reserves, but China didn't do that. China made full preparations to face a complex situation after the yuan plunged beyond 7 per US dollar.

China's central bank reiterated on Monday that it is confident in its ability to keeping the yuan's exchange rate basically stable. Therefore, China dared to give it a try and allow a free fluctuation on the currency market on Monday. China's ability to maintain economic stability has been vastly strengthened, giving the country's policymakers more confidence in pushing the yuan's internationalization.

The yuan's sudden slump against the US dollar on Monday seems to have exceeded US expectations and triggered a hot debate among US observers. This suggests China now has the initiative in the trade war and won't be content to only play defense.

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