Trump's Claims Damage International Markets
The People's Bank of China (or PBOC) said that President Trump's accusations against the Chinese could cause chaos in the financial markets.
Donald Trump accused China of manipulating their currency yesterday, adding that they have historically used that method to steal America's businesses and factories.
"China dropped the price of their currency to an almost historic low. It’s called “currency manipulation.”, explained Trump on his twitter account, "China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!" he added, highlighting that China's intent is to continue receiving billions of dollars through "unfair trade practices" and "currency manipulation."
Answering to those accusations, the People's Bank of China warned against those claims in its website, saying that they “severely damage international financial order and cause chaos in financial markets” and “prevent a global economic and trade recovery,”
They highlighted that the Chinese Government doesn't use exchange rates as a tool to deal with trade feuds with other countries and that the United States should be aware of its mistakes, and "turn back from the wrong path.” The Chinese claim is backed by the International Monetary Fund, who published recently that the Yuan's value is aligned with Chinese economic fundamentals.
The trade feud between two of the most powerful economies in the globe recently escalated due to Donald Trump's recent decision to impose tariffs on more Chinese exports. Before that, both countries were focused on giving goodwill gestures that would pave the road to more serious talks, where they would asses the United States requests.
The yuan has fallen 2.7% against the dollar over the past three days, hitting an 11-year low right after President Trump decided to impose the tariffs. This move also increased uncertainty in the international markets, as it will disrupt the global supply chains.
On the other hand, the Chinese Central Bank set a stronger daily currency fixing and announced a yuan-denominated Bonds sale in Hong Kong, this shouldn't be surprising because even though the Yuan devaluation certainly favors Chinese exports (making them cheaper) an uncontrolled fall of the Yuan could disturb the economy and cause a Capital outflow.