China’s Currency Manipulation

A cura di Walter Snyder, Swiss Financial Consulting

During the American presidential election campaign, Donald Trump claimed that China had been manipulating its currency. After a meeting in April 2017 with Chinese General Secretary Xi Jinping, President Trump declared that China was not a currency manipulator. Assuming that Mr Trump is correct on both accounts, there should be evidence indicating that there has been a change in the way the PBoC intervenes on the Forex market.

In this respect it is helpful to examine the history of the Usd/Cny exchange rate for the last few years. In 2003 one dollar bought 8.28 renminbi. In 2007 the renminbi was trading at 7.72. Charts show that there was continual appreciation of the Chinese currency until 2008 when the exchange rate was 6.83. This is no surprise considering the huge trade surplus that Chinese exports were producing. There was a pause brought about by the Great Recession in 2008 when appreciation of the renminbi was halted due to intervention on the Forex market. In fact in May/June 2008 the rise of the renminbi was stopped, and the exchange rate remained practically unchanged until May 2010. At that point the ascension of the Chinese currency recommenced and reached 6.04 by January 2014. The authorities evidently considered this to be too high and bad for exports, which needed a cheaper currency, so depreciation started. By early August 2015 the rate was 6.20 and then jumped to 6.38, which was practically a devaluation. From August 2015 to the end of December 2016 there was further support in favor of a weaker currency with the renminbi reaching 6.95.  The situation then seems to have stabilized after a minor correction, and the exchange rate has remained very stable at about 6.88 since then.

The conclusion to be drawn from these figures is that the PBoC let the currency appreciate until it reached 6.04 in January 2014 with a pause because of the Great recession and then decided to intervene heavily in order to protect export industries. This was clearly the case before the US election in November 2016, and the extremely low volatility notable from January 2017 on suggests that the Chinese again want a stable exchange rate so as not to irk the Americans. One can conclude that the PBoC was active both before and after the election.

President Trump clearly wants to avoid friction with Xi Jinping and therefore no longer rails against China. What Trump says and what he does are not the same thing. Forex traders can therefore reckon that the Usd/Cny exchange rate will exhibit very low volatility in the near future.

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