CBN begins sale of Chinese Yuan to importers

23 July, 2018, 12:36 | Author: Salvatore Jensen
  • Beijing can't afford to keep retaliating with equivalent tariffs on U.S. goods

Auto tariffs would sharply escalate global trade tensions: The U.S. last year imported $192 billion in vehicles and $143 billion in auto parts - figures that dwarf last year's $29 billion in steel and $23 billion in aluminum imports.

Chinese leaders have promised repeatedly to keep the yuan stable but official secrecy fuels investor jitters.

That came after Trump CNBC on Thursday aired portions of a Trump interview in which he criticized the Federal Reserve's current course of interest rate hikes.

These comments will make for an interesting G20 finance ministers meeting this weekend in Buenos Aires, but it does appear that not only do we appear to be heading for a trade war, but it also looks like currencies are about to be brought onto the field of battle as well, as the U.S. administration tries to limit the effects of its own fiscal stimulus.

Jasper Lawler, head of research at London Capital Group, called China's lowering of the trading band "the starting of a currency war" in response to the trade war.

Currency wars occur when a number of countries seek to depreciate the value of their own currencies in order to stimulate their economies, Investopedia writes. The government does, however, enjoy more influence over the value of its currency than the U.S. does.

The CBN asked banks to bid for renminbi between 9:00 a.m. and midday, two people, who asked not to be identified because they're not authorized to speak to the press about the matter, said. "Businesses can export more and the country benefits from stronger economic growth". Their goods will become more expensive relative to China's. "That hurts consumers and adds to inflation".

The term was coined by Brazil's finance minister, Guido Mantega, who was describing a 2010 stand-off between the USA and China.

The U.S. dollar fell against major currencies on Friday on Trumps threat to impose more import tariffs and his repetition of complaints about rising interest rates and the strength of the U.S. dollar.

In real terms, China could not match the scale of Trump's suggested US$500 billion of tariffs - roughly the total value of Chinese products imported by the United States a year ago. That could in turn boost an economy that posted its slowest growth rate in almost two years - 6.7% - in the second quarter. India's Commerce Department had suggested keeping 25 percent tariffs on solar cells and modules imported from China on Monday.

However, it is a high-risk strategy.

The yuan's decline looks less dramatic compared with other currencies.

Chinese actions have prompted Trump to express dissatisfaction with the Fed's monetary policy. Presidents historically do not comment on the Fed's policy as it could be viewed as influencing the bank's decisions, which are meant to be independent of political influence.

The yuan last traded at 6.7955 to the dollar in the onshore market, after falling to 6.8128 in Asian trading. hours.

Iris Pang, chief China economist of ING Bank, said China was resisting responding to Trump's rhetoric this time, partly because the United States leader may be only bluffing.

"There's no negotiating going on that I can see", Dollar said.

When asked about the stock market possibly falling if the U.S. imposed duties on such a large amount of goods, Mr Trump told CNBC: "If it does, it does".


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