The Chinese yuan is currently the most closely-watched currency by investors.
When China allowed the value of the yuan to go to levels of less than 7 per dollar, it created a panic in the global markets.
The currency has weakened more than its psychological barrier value of 7. This had triggered the U.S. government to call China a “currency manipulator”.
After the trade war started between Washington and Beijing on April 2018, the offshore yuan saw its value weakening at 11 percent against the dollar. This has made it touch low record levels of 7.1397.
The People’s Bank of China provides for a two percent range bound movement for the yuan around a mid-point against the dollar every day. It also uses a counter-cyclical factor to make the adjustment on its midpoint to prevent large swing movements on its currency.
Further, the PBOC operates mostly through its state-owned banks and does not make a direct intervention on foreign exchanges.
President Trump has been imposing tariffs on the Chinese imports and China has been retaliating in equal measure, affecting the two large economies.
Recently, when trade talks were not going on smoothly and there was a heavy delay by China in the talks, President Trump had announced a further increase in tariff from September 1. In retaliation, China had completely stopped its purchase of agricultural products from the U.S. The value of the yuan had also depreciated well past the crucial level of 7.
On Monday, the value of- the yuan dropped below its psychological level 7 to the dollar, the first time after a decade, when it happened in 2008.
President Trump has been accusing China repeatedly of keeping the value of yuan lower and using the currency to gain a trade advantage.
PBOC Governor Yi Gang has however stated that China would not involve in any currency devaluation for competitive reasons.
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