China Stabilizes Its Currency A Day After Being Labeled Currency Manipulator | Citizens Against Government Waste

China Stabilizes Its Currency A Day After Being Labeled Currency Manipulator

The WasteWatcher

China stabilized its currency a day after allowing it to fall rapidly amid its ongoing trade war with the United States.

The yuan rebounded to 7.0297 to the dollar after falling to 7.0562, an 11-year low, reported the Associated Press (AP).

The stabilization comes after the U.S. Treasury Department officially classified China as a “currency manipulator” in its latest step of escalating trade war moves that rattled financial markets on Monday.

The manipulation classification is in direct response to China’s decision to sharply reduce the value of its currency. China’s decision to devalue was, in turn, a response to the Trump administration’s decision to levy more tariffs on a broad range of Chinese goods. The administration’s decision came after a breakdown in trade talks in May.  

China has a long-standing practice of intervening in its markets to suppress the value of the yuan. The Chinese central bank has routinely bought dollars and sold yuan, causing the yuan to be worth less than it otherwise would be. This has the effect of reducing the cost of Chinese exports, boosting China’s manufacturing industries, and making it harder for American firms to compete.

China allowed the yuan to rebound after U.S. Treasury Secretary Steven Mnuchin promised to “engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”

According to the AP, Chinese central bank governor Yi Gang pledged in a statement late Monday “not to use exchange rates for competitive purposes.”

Stocks reacted positively to the news on Tuesday after suffering the worst day of the year the day before.