Yuan fall fuels China-West currency war
China devalues the yuan for the third straight day, raising new fears that the measure could bring a fresh wave of price weakness to the West and trigger a currency war.
The central bank put the yuan’s parity rate at 6.4010 per US dollar on Thursday. That was a drop of 1.11% from the previous day’s 6.3306 and the lowest since August 2011.
The depreciation comes after the People’s Bank of China (PBOC), the country’s central bank, said it had changed the way it calculates the reference rate for the yuan in order to make it more market-oriented.
China’s rivals see it as a way to boost exports and prop up the market. They say the decision is also in line with Beijing’s bid to make its yuan one of the reserve currencies in the International Monetary Fund.
The West is crying foul and accusing Beijing of waging a currency war through direct intervention in the market. The US and Europe also fear a further lowering of the yuan value by the Chinese government.
PBOC’s Ma Jun, however, defended the move and dismissed accusations that Beijing sought to wage a currency war.
Quoted by the official Xinhua news agency, he said China did not need to start a currency war to boost its exports given that they were expected to pick up in the second half of the year.
“The central bank, if necessary, is fully capable of stabilizing the exchange rate through direct intervention in the foreign exchange market to avoid the herd mentality resulting in irrational movements of the rate,” he said.