While China’s currency, the yuan, is lingering at a six-month low against the US currency analysts are concerned that the situation might herald a looming currency war between the two superpowers.
Beijing could turn a weaker yuan into an invisible weapon against its rival if the trade dispute morphs into a full-blown trade war. The Chinese could artificially depreciate the yuan to make Chinese exports cheaper on the international market than U.S. goods.
Not all analysts, on the other hand, are not convinced that Beijing would do that on purpose. BK Asset Management experts noted that markets are “on edge” because of the ongoing devaluation of the Chinese currency. People are talking about it and fear that a currency war might be next.
The anxiety was eased by an announcement from U.S. President Donald Trump on Wednesday. Trump promised to revamp the Committee on Foreign Investment in the United States (CFIUS), a committee that will decide whether it is a good idea to allow Chinese businesses to have a stake in U.S. companies.
Trump’s promise suggests that the United States could back off on some drastic measures that barred companies owned by Chinese investors from purchasing certain U.S. tech companies.
The Yuan Could Further Depreciate
The yuan has been losing value against the U.S. dollar since the trade dispute became hotter earlier this month. The U.S. currency recently jumped to the highest level since late December to 6.6145 against the yuan.
The White House has often accused Beijing of keeping the yuan down on purpose to prop up exports. Also, the current U.S. administration almost called the Asian trade partner a “currency manipulator” earlier this year.
Many analysts believe that China is not devaluing the currency on purpose, but they do believe that the government could be doing less to keep it from sinking.
Deutsche Bank analysts don’t think that the yuan’s decline has stopped, but they dismissed the rumors about a currency war as “unfounded.”
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