It is reported that the People’s Bank of China has devalued the yuan, fixing it at 0.28 percent weaker than the previous rate, 6.9377 against the US dollar. The current rate is 6.9574 per dollar. It is the lowest since 2008, the year in which many countries experienced a recession. Experts find this alarming since the yuan has gone down about 9 percent since January. Chances are that the trend will continue until the rate touches 7 per USD. Two factors are identified as contributing towards this: the dollar gaining strength after the hike in interest rates in the US, and worries about the impact of the trade war on the Chinese economy.
Bloomberg had warned investors that the US may impose tariffs on all Chinese goods in December if the oncoming meeting between President Trump and China’s Xi Jinping do not go well. They are to meet at Buenos Aires in November, at the G20 summit. And it is highly probable that the Xi-Trump meeting ends up without any productive results. Trump’s comment in an interview on Monday, that he expects a ‘great deal’ with China, and the deal has to be great since they have drained the US, indicates that he in no mood for compromise.
If the talks fail, the trade war tensions will escalate, and it may remain so for more than a year. According to the Bloomberg report, the US is getting ready for such an eventuality. To make matters worse, Trump has accused China of devaluing its currency intentionally. This is based on the notion that a cheaper yuan may help moderate the impact of the current crisis. This may help China to a certain extent since it is an exporting nation. However, China has rejected Trump’s claim. It is expected that the People’s Bank of China will see to it that the pace of devaluation is gradual. The chances of the yuan going lower than its 2008 rate cannot be dismissed. Yet, it is too early to say anything on the matter.