China's yuan devaluation goes against globalization
MASAHIRO OKOSHI, Nikkei staff writer
BEIJING -- China's surprise move on Tuesday to devalue its currency is clearly aimed at supporting the nation's struggling exporters. Beijing's downright attempt to manipulate the exchange rates as an economic policy tool is bound to draw international criticism as it runs counter to its stated goal of globalizing the yuan.
In a statement released the same day, the People's Bank of China said the move is intended to ensure that "the yuan's exchange rates be in conjunction with demand and supply condition in the forex market and exchange rate movement of the major currencies."
The PBOC only allows the yuan to move 2% against the dollar above or below a reference point, set each morning. Although the currency's trading band has been widening gradually, the reference point set by the PBOC is a virtual guide for the yuan's rates.
In late July, the State Council, China's cabinet, announced that it will allow the yuan to fluctuate in a wider range against the dollar as part of measures to boost exports. At a time when many expected the yuan to continue falling amid China's economic slowdown and U.S. rate hike speculation, the wider trading range was clearly designed to expand the yuan's room to fall, and thereby increase exports.
The yuan's real effective exchange rate has jumped about 10% over the past year, and the country's exports in July fell 8% on the year, according to the Bank for International Settlements.
There is deep-seated dissatisfaction in the U.S. and other Western countries that the yuan is undervalued. Beijing's moves to put a brake on economic slowdown by devaluating the currency could draw stronger criticism from those countries.