[The move by the People’s Bank of China in itself will not change the economics of the Chinese-American trade relationship. China on Thursday set the currency’s midpoint at 7.0039 to the dollar, compared with the 6.9996 point it set on Wednesday. China tightly controls trading of its currency, with that midpoint determining the center of a narrow range in which the renminbi can strengthen or weaken during the day.]
By
Alexandra Stevenson
 |
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China’s central bank on
Thursday set the midpoint of the renminbi’s daily trading
range above 7 to the
American dollar for the first time in more than a decade.
Credit Jeenah Moon for
The New York Times
|
BEIJING
— China signaled on Thursday
that it might continue to weaken its currency, a move that threatens to again
escalate the trade war with the United States.
China’s central bank on Thursday set the
midpoint of the renminbi’s daily trading range above 7 to the American dollar
for the first time in more than a decade. The move in effect tells financial
markets that Beijing expects the renminbi to continue to weaken versus the
dollar, perhaps well past the 7-to-the-dollar level.
That is likely to provoke more ire from the
Trump administration. A weaker currency helps Chinese factories offset the
higher costs of Mr. Trump’s tariffs when selling their goods to the United
States.
The move by the People’s Bank of China in
itself will not change the economics of the Chinese-American trade
relationship. China on Thursday set the currency’s midpoint at 7.0039 to the
dollar, compared with the 6.9996 point it set on Wednesday. China tightly
controls trading of its currency, with that midpoint determining the center of
a narrow range in which the renminbi can strengthen or weaken during the day.
Such a hair’s breadth move occurs every day
in global currency markets. The renminbi is already trading just above 7 to the
dollar, a psychologically important level it breached on Monday in China.
But China’s action suggesting that it expects
the currency to weaken further will put more focus on the central bank’s daily
midpoint in the coming weeks to see whether China will weaken the currency —
perhaps to 7.5 or 8 renminbi to the dollar — to the point at which it would
significantly begin to weaken the impact of American tariffs. A higher number
versus the dollar means a weaker currency.
The move could prompt central banks in the
Asia Pacific region to explore cutting interest rates. On Wednesday, three
central banks in the region reduced rates in a move that was widely seen a
defensive attempt to shore up their economies as the trade war threatens global
growth. Central banks in India, Thailand and New Zealand cut interest rates in
a cascade of surprise moves that set off currency markets.
“If the yuan, or when the yuan, falls
significantly more, we should expect more monetary easing to offset what is a
deflationary impulse for a lot of Asian countries and to restore some
competitiveness,” said George Magnus, an associate at Oxford University’s China
Center, referring to China’s currency by its other name.
The Trump administration labeled China a
currency manipulator on Monday in the United States. But many economists and
investors believe China in effect is loosening controls of its currency.
China kept its currency weak a decade ago to
help its exporters, long prompting complaints from the United States and
Europe. But in recent years, China’s currency has strengthened to a level
widely believed to be close to fair value. Today, as China’s economic growth
has slowed and the trade war has pinched its manufacturing sector, many
economists believe the country’s currency should be weakening versus the dollar.
