The Chinese yuan vs. US dollar rate has increased by 10% since the beginning of last year. This puts to bed complaints that the Chinese had been deliberately keeping its currency low. A low yuan would mean that the Chinese would gain an economic advantage over the US in world trade.
Part of this may be due to the current weakness of the US dollar, but there other reasons. One reason promoted is that the Chinese economy is being deliberately overvalued to appease Donald Trump, and perhaps prevent some of the sanctions against China that he has threatened. During his 2016 presidential campaign, Donald Trump had threatened to name the Chinese as being currency manipulators. He has not yet done this.
Chinese Yuan vs. US Dollar – Yuan increases against Dollar
The Chinese yuan vs. US dollar rate has not dropped. Rather than falling, the Chinese yuan increased against the US dollar by nearly 7% in 2017. During the three years to then, the yuan had progressively been falling. In January of this year, the yuan appreciated by another 3.5%.
China has succeeded in keeping its currency stable against a bundle of other currencies.
RMB Index Stable
Over 2017, the RMB Index (Chinese Foreign Trade System) remained stable with just a 0.02 point increase over the year (94.83 – 94.85). That was in spite of the yuan increasing in value over the US dollar. The RMB Index is measured against a number of other currencies including the euro, Japanese yen, and the US dollar.
It is possible that the Chinese are trying to maintain a basket of currencies that would ensure that strong currencies such as the yen and euro would offset any weakness of the US dollar against the yuan. So if the dollar depreciates, and the others grow stronger, the yuan remains the same against the whole basket of currencies.
Even though the US dollar has lost over 2% against the yuan this year so far, the RMB Index increased 1.3%. So the Chinese ploy appears to be working. The Chinese yuan vs US dollar. US dollar rate should theoretically keep Donald Trump happy.
