The offshore exchange rate of China’s fiat currency versus the U.S. dollar recently breached the 7:1 mark for the first time in over two years, after it touched a new 2022 low of 7.0188 yuan for every dollar on September 15. Similar to other global currencies that have depreciated in 2022, the yuan’s decline is being driven by the strengthening of the U.S. dollar.
The Yuan’s Depreciation
The offshore exchange rate of the Chinese currency versus the U.S. dollar breached the seven RMB per every dollar mark after it traded at 7.0188 on September 15, 2022. This is the first time in over two years that the exchange rate of the two currencies has gone past this threshold. However, on the same day, the yuan onshore exchange rate had not breached the 7:1 threshold. According to a report in the Economic Times, the yuan’s depreciation against the greenback comes against the backdrop of a strengthening dollar. The currency’s decline also came amidst growing fears that the Chinese economy may be slowing down. However, as per the report, the Chinese central bank’s attempts to assist the economy via an interest rate cut in August helped to spark a 3% depreciation of the yuan. Remarking on the dilemma that the People’s Bank of China (PBOC) now faces, Ken Cheung, chief Asian FX strategist at Mizuho Bank, said:The PBOC has demonstrated its stance to defend the RMB exchange rate from breaking above [the] 7 handle shortly and a rate cut will contradict such objective.Cheung is also quoted in another report stating that he now believes that the PBOC is no longer interested in stopping the currency from breaching 7 yuan for every dollar, but will attempt to “delay and smooth out the yuan depreciation pace.”
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