- Surangana Tiwari and Peter Hoskins
- BBC
The Chinese yuan hit a new record low once morest the high exchange rate of the US dollar.
The yuan has fallen to its lowest levels since data first became available in 2011.
The Chinese currency also hit its weakest level since the 2008 global financial crisis.
This comes in light of the rise in the dollar’s exchange rate once morest other major currencies, following the US Central Bank raised interest rates once more earlier this month.
Major stock market indices across Asia also fell sharply on Wednesday.
The Japanese Nikkei index closed down by 1.5 percent, while the Kospi index in South Korea closed the day down by 2.4 percent, and the Hang Seng index in Hong Kong fell by 2.8 percent.
China’s central bank is trying to slow the yuan’s decline by making it more expensive to bet on the currency. The People’s Bank of China has also reduced the amount that foreign exchange banks must hold.
Many investors see the dollar as a safe haven to put their money in times of trouble.
The move helped increase the dollar’s exchange rate once morest other currencies, including the pound sterling, which hit an all-time low once morest the dollar on Monday.
On Wednesday, the dollar recorded its highest level in 20 years once morest a number of major global currencies, which are closely monitoring the situation.
The sharp decline of the yuan is another example of the currency’s weakness due to the strength of the dollar.
It is also regarding the very different paths that China and the United States are taking in response to economic issues at home.
The People’s Bank of China had resorted to cutting interest rates to revive growth in an economy devastated by closures to curb the outbreak of Corona, while the US Federal Reserve is moving strongly in the opposite direction as it seeks to control inflation.
photo released, Getty Images
Joseph Caporso, head of international and sustainable economics at the Commonwealth Bank of Australia, told the BBC that such a difference was not an overall problem.
He added that currency depreciation might actually be a benefit for exporters within China, as it would make their goods cheaper and thus might boost demand.
Despite this, exports currently account for only 20 percent of the Chinese economy, so the weakening of the yuan will not change the course of the domestic fundamental weakness caused largely by Beijing’s strategy to combat the Covid epidemic and the real estate crisis, according to Caporso.
A weak currency might also lead to investors withdrawing their money from the country, as well as a state of uncertainty in the financial markets, something Chinese officials want to avoid with the Communist Party Congress next month, in which Chinese President Xi Jinping is expected, An unprecedented third term.
The depreciation of the yuan caused weakness in other currencies of advanced economies in the region, including the Australian and Singaporean dollars, as well as the South Korean won.
The Bank of Japan intervened, last week, in order to support the yen for the first time since 1998, following the currency weakened once morest the dollar.
Emerging markets in Asia are also at risk, as they are heavily dependent on the yuan due to sales of raw materials and components to Chinese factories.
The United States has accused China in the past of deliberately devaluing its currency to keep exports cheap and imports from the United States expensive.
Although the strong dollar shook global markets, it is unlikely to deter the Fed from continuing to raise interest rates.
“A strong dollar works for the US market,” said Dmitri Zabelin, of the Center for Foreign Policy Research at the London School of Economics.
“That is taken into account, but it will not be as burdensome as the domestic inflationary anxiety,” he added.
