After the Euro and the Pound, it is the turn of the Yuan to lose value at the gain of the US Dollar. A global trend that is beyond the reach of any central bank’s actions.
Despite China’s several attempts to challenge the global domination of the US Dollar, the Yuan too felt the impacts of the global economy as Washington’s currency is stronger than ever. Hong Kong closed 3.4% lower, and both Yuans are at their lowest rate in recorded history.
I say both Yuans referring to onshore and offshore Yuan. Beijing uses these two currencies to facilitate offshore imports. The Renminbi, official name of the offshore Yuan, is one way China tries to challenge the Dollar’s dominance. Trying to insert it into foreign economies, China slowly but surely establishes economical footholds around the World. In theory, at least.
However, both the Yuan and the Renminbi fell to historical lows when the stock market opened. The former to 7.2302 per dollar and the latter to 7.2386 per dollar. The two Chinese currencies were only the last of a series of global stock markets crashing as the Dollar keeps rising. Last week, the Pound too fell to a historical low, and the Euro maintained its downwards trend.
The Chinese government and the People’s Bank of China (PBoC) are trying to reverse this fall by cutting interest rates and making it harder to bet against the Yuan. A move that will likely have no effect because the main reason all these currencies are falling are beyond China’s reach.
“Since the PBoC can do little to change the fundamental forces driving the dollar’s gains, attempts to reverse market trends would likely fail, undermining its credibility,” said analyst Wei He.
Why the Yuan (and other currencies) are falling
The main reason the Dollar is gaining ground at the expense of other currencies is last week’s announcement by Russian president Vladimir Putin. As soon as he called for the partial mobilization of 300.000 new conscripts, the markets fell into chaos.
As always in times of crisis, investors find safe haven in the main (and basically only) pillar in the global economy: the US Dollar. The greenback makes markets feel safe, as most of the global trade and transaction is held in Dollars. A trend that, as we said, China tried to counteract.
When the invasion of Ukraine started, for example, China tried to use the Yuan to purchase oil both from Russia and its Middle Eastern partners. A smart move that, unfortunately for Beijing, is nowhere close to be considered a threat for the USA.
The reality of things is that the Dollar remains the most stable and secure currency on the planet, and China is probably not happy with the decisions that make her currency lose value. In short, Putin must be very careful to not anger the only ally he’s got.
