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Chaos In Financial Market Could Result Due To US Labeling China A Currency Manipulator


08/06/2019


Chaos In Financial Market Could Result Due To US Labeling China A Currency Manipulator
The decision of the United States to label China as a currency manipulator would "severely damage international financial order and cause chaos in financial markets", said China's central bank said on Tuesday.
 
The People's Bank of China (PBOC) said that the decision of Washington to rake up the currency tensions with Beijing on Monday would also "prevent a global economic and trade recovery". This was the first official response of China to the latest allegations against Beijing by Washington in relation to the raging trade war between the two countries.
 
The PBOC said in a statement on its website that China "has not used and will not use the exchange rate as a tool to deal with trade disputes". "China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path," it said.
 
There was a significant slide in the Chinese currency yuan on Monday following which the currency accusation came from the US. This latest salvo has also resulted in widening the fissure between the two countries with the two largest economies of the world which and amidst worsening trade tensions following US president Donald Trump’s fresh threat of imposing a 10 per cent tariff on Chinese goods worth $300 billion last week. The two countries have been locked in an acrimonious trade war for more than a year now.
 
The trade war has already spread beyond tariffs into other areas such as technology. According to analysts, the scope and severity of tit-for-tat measures could widen further leading to further depression of business sentiments and confidence and global economic growth.
 
The trade dispute between the two countries was furthered after a statement by the US Treasury Department on Monday in which it claimed that it had managed to determine that China was manipulating its currency which was the first time such evidence was available since 1994.
 
According to a comment published in the Global Times, an influential Chinese tabloid published by the Ruling Communist Party's People's Daily, political motive to "vent its anger" was the sole driver for the decision of the US. Hu Xijin, the newspaper's editor-in-chief, tweeted on Tuesday that China "no longer expects goodwill from the United States".
 
It was less than three weeks ago that the International Monetary Fund (IMF) had said that the value of the yuan was in line with the economic fundamentals of China but the value of the US dollar was 6 per cent to 12 per cent more than it should be. This is an important consideration while considering US allegations about China being a manipulator of its currency.
 
Under the US law, identifying currency manipulation among major trading partners is based on three criteria – continued one-way intervention in foreign exchange markets, a large trade surplus with the United States and a a material global current account surplus.
 
To gain leverage in its trade dispute with the US, China could use its dominant position as a rare earths exporter to the United States, warned the Chinese state media. These rare earth materials are critical in manufacturing of a range of products and processes ranging from military equipment to high-tech consumer electronics.
 
(Source:www.channelnewsasia.com)