Trump’s Strengthening Dollar vs China’s Weakening Yuan. @gordongchang, @thedailybeast. Christopher Balding, Peking University
Trump’s Strengthening Dollar vs China’s Weakening Yuan. @gordongchang, @thedailybeast. Christopher Balding, Peking University HSBC Business School and author of Sovereign Wealth Funds: The New Intersection of Money and Power,
China's leaders are hardly disguising their fears about money leaving the country. They've just imposed new disclosure rules limiting how Chinese -- who are allowed to convert up to $50,000 worth of yuan into foreign currency each year -- can spend that money overseas. Simultaneously, they're striving to tamp down worries about the tumbling yuan, which has fallen to an eight-year low against the U.S. dollar. At the end of December, the government added 11 currencies to the basket against which it now values the yuan. While the Chinese currency fell 6.5 percent against the dollar in 2016, its value measured against the broader basket has remained largely stable since July.
The idea, at least in part, is to persuade ordinary Chinese that their nest eggs are safe in renminbi. Unfortunately, this latest effort isn't likely to work any better than earlier ones. The yuan remains inextricably bound to the U.S. dollar -- and everyone knows it.
The People’s Bank of China created the exchange-rate basket roughly a year ago. The goal was twofold -- to shift attention away from the yuan's precipitous decline against the dollar and to reduce China's dependence on the U.S. currency. The latter was widely seen as humiliating -- an affront to a rising superpower and the world's second-largest economy. That resentment helped drive China's effort -- since stalled -- to internationalize its currency.