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The Paper: The Renminbi Becomes Independent

On August 5, for the first time since 2008, the exchange rate between the Chinese Yuan and the U.S. dollar surpassed 7:1. The Paper published a commentary analyzing the meaning.

“It reflects a big change in China’s currency policy. It will no longer attempt to keep the exchange rate below 7. From the short-term perspective, under the pressure of Trump’s new tariff on over $300 billion of Chinese goods and the downward pressure on China’s economy this year, devaluing the Renminbi will help the economy.”

“A deeper meaning of the exchange rate’s breaking the 7 limit is that the Renminbi has become more independent. The U.S. dollar index went down in the past three days. The Renminbi went lower against the U.S. dollar but higher against other currency (had the Renminbi followed the U.S. dollar, it would have gone lower against other currency since the U.S. dollar went lower against them).”

“Putting the information together, it showed that the Renminbi has started to cut its tie to U.S. dollar and has started to be independent. This will weaken the dollar’s global position in the long run. After breaking away from the U.S. dollar, the Renminbi will gradually obtain a stronger position in the world. Finally, China made this step (to make Renminbi independent from the U.S. dollar). It is a bit too late to do so, but it is still better than not to make this move at all.”

The author predicted that the Renminbi will continue going down.

Source: The Paper, August 5, 2019