China’s currency has fallen to its lowest point in ten years (the currency fell below 7 yuan to the US dollar for the first time since 2008), creating a ripple effect across global markets.  This has escalated the already high tensions between the US and China and led to US President Trump lashing out at China on Twitter and accusing them of “currency manipulation” and labelling this as a “major violation”.

The impact of this is –

  • Chinese exports are now cheaper to buy with foreign currencies.
  • The US sees this as an attempt to offset the impact of higher tariffs on Chinese imports coming into America.
  • While it appears a win for consumers around the world – who can now buy Chinese products more cheaply – it carries other risks like making imports into China more expensive, creating a strain on the economy, and pushing currency holders to invest in other assets.

Several investors viewed the move in the yuan as a direct response to Trump’s announcement of 10 percent tariffs on an additional $300 bn Chinese imports.

On Monday, the People’s Bank of China (PBOC) said the slump in the yuan was driven by “unilateralism and trade protectionism measures and the imposition of tariff increases on China.”.

Analysts forecast the yuan will weaken further.

Sources – BBC, Al Jazeera

Image Credits – BBC