The value of the Chinese yuan has dropped to new all-time lows when compared to the rising value of the US dollar.
Since comparable data were first made available in 2011, the value of the internationally-traded yuan has dropped to its lowest point.
Additionally, China’s national currency reached its most vulnerable state since the international financial crisis of 2008.
It comes at a time when the dollar value continues to rise against other major currencies after the Federal Reserve of the United States raised interest rates again earlier this month.
During this time, major stock market indexes across Asia experienced significant declines on Wednesday.
The Hang Seng index in Hong Kong finished the day by 3.4%, the benchmark Nikkei index in Japan finished the day by 1.5%, and the Kospi index in South Korea ended the day by 2.4%.
In times of uncertainty, many investors choose to keep their money in dollars because they believe it is a secure investment.
Because of this, its value has increased in comparison to other currencies, such as the British pound, which reached an all-time low against the dollar on Monday. This has helped to drive up the value of the US dollar.
Additionally, on Wednesday, the value of the dollar rose to its highest level against a group of the world’s most important currencies in more than 20 years.
Another example of a currency losing value due to the dollar’s strength is the recent decline in the yuan’s value.
It is also about the different approaches that the United States and China are taking to deal with economic problems in their respective countries.
To jumpstart growth in an economy devastated by Covid lockdowns, the People’s Bank of China (PBOC) has been lowering interest rates. In contrast, the Federal Reserve in the United States has been aggressively moving in the opposite direction in an effort to bring inflation under control.
According to Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia, speaking a divergence of this kind is not an entirely problematic situation.
According to him, the depreciation of the currency could be advantageous for Chinese businesses that export their wares because it would lower the price of their products and, as a result, boost consumer demand.
However, exports make up only 20% of the Chinese economy today; therefore, a weak yuan will not be able to turn around fundamental weakness domestically, which is largely caused by Beijing’s zero-Covid strategy and a property crisis, according to Mr. Capurso.
A weaker currency can also lead to investors pulling their money out of the country and uncertainty in financial markets, both of which are things that Chinese government officials will want to avoid as the Communist Party Congress is coming up next month.
The depreciation of the yuan has led to a decline in the value of other currencies used in developed economies located in the region. These currencies include the Australian dollar, the Singapore dollar, and the South Korean won.
After the yen’s value declined in comparison to that of the dollar, the Bank of Japan took action to prop up the yen for the first time since 1998, which was just last week.
The developing economies of Asia are also at risk because of their dependence on the yuan, which they have developed as a result of their export of raw materials and other components to China’s factories.
In the past, Washington has leveled the accusation that China purposefully devalues its currency in order to maintain low prices for its exports while maintaining high prices for goods imported from the United States.
Even though a strong dollar has shaken up global markets, it is highly unlikely that the Federal Reserve will change its plan to keep increasing interest rates.
According to Dimitri Zabelin, a researcher at the foreign policy think tank at the London School of Economics, “The strong dollar is working for the US market.”
“Although it will be taken into account, it will not carry as much weight as domestic concerns regarding inflation.”
The People’s Bank of China has been increasing the required margin for betting against the yuan to halt the currency’s depreciation. The PBOC also lowered the reserve requirements for foreign currency that banks are required to hold.