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IPFS News Link • Currencies

Pressure On China To Devalue Yuan Becoming More Acute

• by Simon White

The dollar is rallying again today, putting pressure on currencies around the world. Of significance, the yuan has breached the widely-watched level of 7 for the first time since 2020.

China has started to push back more heavily against the weakening, with the official yuan fix moving from about 400 pips lower than USD/CNY at last week to 845 pips today.

The PBoC also withdrew yuan liquidity from the market Thursday, as well as last week announcing a reduction in the FX reserve ratio for banks due to take effect today.

But it is getting harder for China to keep gravity at bay for the yuan.

China's growth model of subsidizing the export-facing state-owned enterprise sector by repressing the household one – a policy reinforced by the pandemic – means that China's ballooning trade surplus is a sign of weakness, not strength.