Tags: China | Yuan | currency war | Asia

Yuan's Drop Threatens to Alienate US, Ignite Currency War With Asia

By    |   Tuesday, 25 March 2014 12:07 PM

Chinese authorities have been intervening since last month to push the yuan down, and the move threatens to upset the U.S. and ignite a currency war with Asia.

The dollar has gained 2.4 percent against the yuan since Feb. 14. The Chinese currency had been gradually appreciating, amid pressure from Washington, over the past nine years.

The People's Bank of China (PBOC) believes that the yuan's downturn was necessary to punish speculators who gambled on a continued appreciation for the currency, people with direct knowledge of the central bank's thinking told The Wall Street Journal.

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But many officials in the United States and elsewhere in Asia maintain that China is depressing its currency to give its exporters a leg up, the paper reports.

And experts say that if the Chinese continue to depress their currency, trouble could arise.

"A fresh spate of currency tensions could ensue if the PBOC is seen as intervening heavily to keep the value of the yuan down," Eswar Prasad, a trade policy professor at Cornell University, told The Journal.

"A weaker yuan could increase pressures on other central banks, especially those in Asia, to prevent their own currencies from appreciating."

ANZ economists predict that China will exercise restraint.

"We see risks of further near-term yuan weakness, but do not expect this to extend beyond the second quarter," they wrote last week in a commentary obtained by Reuters. "It is not in the PBOC's interests to have a sustained depreciation in the currency, as this will increase financial stability risks."

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Chinese authorities have been intervening since last month to push the yuan down, and the move threatens to upset the U.S. and ignite a currency war with Asia.
China,Yuan,currency war,Asia
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2014-07-25
Tuesday, 25 March 2014 12:07 PM
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