The Chinese yuan has appreciated 10% against the dollar since the start of 2017, silencing some critics that say China has been deliberately suppressing its currency.
The strength of the yuan against the dollar is partly due to the dollar’s weakness, some think China is propping up its currency to appease President Donald Trump and to avoid being labelled a currency manipulator.
In 2017, the China Foreign Exchange Trade System RMB Index barely moved, starting the year at 94.83 and ending it at 94.85, even though the yuan jumped against the dollar over the period. That measure is a trade-weighted index of the yuan as measured against a collection of currencies including the dollar, euro and Japanese yen.
January’s spike in the yuan against the dollar was “excessive by almost any yardstick,” say experts. China will probably continue to manage its currency in the background even if it keeps its value against the dollar relatively high. Financial analysts predict that the trade-weighted yuan should remain largely stable around current levels as Beijing’s capital control efforts have worked. If the yuan continues to appreciate rapidly, policy makers may seek to stem the rise in order to maintain stability in the trade-weighted yuan. Beijing is walking a tricky tightrope as they seek to balance political concerns with economic reforms and the demands that come with a market-based system.
In the second half of 2015, the Chinese government shocked markets by devaluing the yuan. That spurred capital flight due to concerns over the health of the world’s second-largest economy which further depressed the Chinese currency. Experts believe China ultimately wants a weaker currency, however, they do not know how to achieve it.
And, there’s the Trump factor should China be seen to deliberately adjust its currency downward. But, even without the Trump factor 2015 is still fresh in their minds and they don’t want that to happen again.