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Chinese Yuan Seeks to Make Big Gains on Stability Efforts

August 24, 2018 at 16:31 by Andrew Moran

A fan of 50-yuan billsThe Chinese yuan is looking to make gains at the end of the trading week as the central bank announced that it would be reintroducing a currency fixing method amid the yuan’s dramatic descent. The announcement comes after President Donald Trump accused China of being a currency manipulator.

On Friday, Reuters reported that the People’s Bank of China (PBOC) will reintroduce a measure to ensure the currency market is stable during the yuan’s volatile trading against the US dollar and a basket of other currencies.

The move would modify the central bank’s methodology for remedying the yuan’s daily midpoint, arguing that the “pro-cyclical market sentiment” that has led to the currency’s decline prompted the PBOC to utilize a “counter-cyclical factor.”

Experts contend that the PBOC’s objective is to prevent the herd mentality from accelerating in the forex market, something that might amplify capital outflows. Some analysts are going as far as deducing that it is a precautionary measure to lift the yuan ahead of a Chinese delegation’s upcoming meeting with its American counterpart in Washington next week.

With the PBOC interjecting itself into the forex market, it might give the Trump administration ammunition to the idea that Beijing is depreciating the yuan.

Earlier this week, President Trump told Reuters that China, as well as the European Union (EU), is a “currency manipulator”:

I think China is manipulating their currency, absolutely. And I think the euro is being manipulated also. … And what they are doing is making up for the fact that they are now paying a lot for – hundreds of millions of dollars, and in some cases billions of dollars – into the United States Treasury – and so they’re being accommodated and I’m not, and I’ll still win.

The Chinese government has repeatedly stated that it is not debasing the yuan, pointing out that the currency has appreciated for the last several years, up until its gradual descent 13 months ago. It also confirmed that it will not use the yuan as a tool in its trade war with the world’s largest economy.

The USD/CNY currency pair tumbled 1.02% to 6.8079, from an opening of 6.8781, at 17:00 GMT on Friday. The EUR/CNY also slipped 0.32% to 7.9127, from an opening of 7.9392.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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