China’s currency cuts aren’t always an attempt to bail out exporters. The most recent move has bigger policy implications.
Donald Trump may very well have a field day with today’s currency news, as analysts predict. But he shouldn’t.
Today China’s central bank devalued the country’s currency, the renminbi, by about 2% against the U.S. dollar. It was the biggest one-day move since the renminbi, or yuan, officially de-pegged from the U.S. dollar in 2005. The yuan maintains a close relationship with the dollar and trades 2% in each direction from a midpoint selected by China. Today, that midpoint went from 6.11 yuan per U.S. dollar to 6.22.
Trump and others may say China is purposely devaluing its currency to help exports. After all, its economy is struggling to hit the government 7% growth target.
But is that what’s really going on?