Yuan moves underscore Beijing’s insistence on market-driven reform, further opening-up

Recent yuan moves, essentially determined by the market, are within a controllable range. China could simply tune out the noise of the US’ customary threat to name China as a currency manipulator.

The Trump administration is concerned about the yuan’s recent drop as the US Treasury weighs whether to designate China as a currency manipulator in a foreign exchange report due out next week, an unidentified senior Treasury official was quoted by Bloomberg as saying on Monday.

It’s not the first time that the US has tried to make an issue of the value of the Chinese currency, and there may be ulterior motives for Washington’s threatening tactics amid the escalating trade tensions with China. Nonetheless, it’s groundless to attribute the falling yuan to currency manipulation.

The yuan’s daily fixing rate against the US dollar was set at 6.9019 on Tuesday, the weakest since May 11, 2017. Instead of indicating an intentional weakening of the Chinese currency, a weaker yuan points to the country’s continued push for market-oriented reforms of its foreign exchange rate.

Most currencies, especially those of emerging economies, have weakened against the US dollar this year amid the Federal Reserve’s increasingly hawkish outlook. The markets are increasingly convinced that there might be one or even more Fed rate hikes later this year, putting further downward pressure on most currencies including the yuan.

The falling yuan reflects market sentiment both at home and abroad. China has held onto its managed floating exchange rate framework and the US Treasury’s possible designation of China as a currency manipulator conspicuously distorts the truth.

China would have been manipulating its currency if the yuan had resisted the general trend and strengthened against the US dollar, particularly taking into account the China-US trade row. The yuan’s weakness, arguably in favor of economic growth, is fundamentally a market outcome. China’s insistence on pushing for the yuan to be a global currency regardless of the dark clouds of trade tensions backs up Beijing’s pledge to open its doors even wider to the world. By comparison, the US’ intentional ramping up of trade tensions and its habitual practice of intimidating China with a currency manipulation label only exposes itself to ridicule.