Is China joining the currency war?
Devaluation is not in its interest; the yuan's fall has resulted from market forces and Beijing targeting the trade-weighted exchange rate.
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AMONG its Asian peers, the renminbi has dropped the most against the US dollar recently and aggravated Asia's economic challenges in the face of a strong US dollar. Is China finally joining the currency war, as many critics have long argued for?
The US dollar has risen steadily since the US Federal Reserve started to scale back Quantitative Easing (the taper tantrum) in late-2013. Subsequent Fed rate hikes and the victory of Donald Trump in the US presidential elections have accentuated the US dollar bull run. As a result, most Asian currencies have fallen, with some more sharply than others, against the US dollar, with the renminbi dropping the most.
In the past when the renminbi was held steady against a strong dollar, Asia's currency depreciation provided a competitive boost to the regional economies. Since the 1998-99 Asian Financial Crisis, there have been three periods of sharp Asian currency depreciation: the bursting of the US high-tech bubble in the early 2000s, the US subprime crisis in 2007-08, and the sell-off around the 2013-14 US taper tantrum. In each of these cases, the renminbi either stayed put or continued to rise when the Asian currencies fell sharply against the US dollar.
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