The Chinese yuan has fallen sharply for two consecutive days. It was devalued by 1.86 percent against the U.S. dollar Tuesday, and by another 1.6 percent on Wednesday morning. The devaluation has sparked quite a media storm in Western financial communities, with many Western outlets exaggerating the reasons behind the People's Bank of China's decisions. According to Reuters, the massive fall in the yuan "fires cannon in the global currency war." U.S. "big mouth" presidential candidate Donald Trump even claimed that the cut is "going to be devastating for us."
Yet there is hardly a "war." Given pressure from the U.S., the yuan has undergone a constant revaluation since the tenure of George W. Bush, and has continued during most of Barack Obama's presidency. Even after the downward pressure of China's economy, the trend still kept going for a while. The yuan has increased by 3 percent over the past six months, and by 14.2 percent over the past 12 months.
The yuan has not been pegged to the U.S. dollar since 2005. Instead, a midpoint for the value of the yuan against the U.S. dollar was set, with a continuously enlarging fluctuation. The market-oriented reform of the yuan exchange rate has already formed the rules that are widely accepted in the financial circles.
Reports from the U.S. media over the issue these days are basically nonsensical. Moreover, presidential candidates like Trump are hyping up the topic in order to catch people's eyes. Some Americans are concerned that the slide in the yuan will boost the exports of Chinese products, which will dramatically make "made in China" more competitive.
A few analysts pointed out that Washington is facing a dilemma. It wants to see the "marketization" of the yuan exchange rate. However, it does not wish the yuan to be devalued, for it would pose a threat to U.S. domestic employment. Now that China has adjusted its exchange rate based on market rules, somehow, Uncle Sam has no idea how to "hit" Beijing for it.
We can't help thinking that the White House is not concerned about the yuan's market-oriented reform, but about whether such reform will suit U.S. interests.
Yet since the yuan exchange rate is determined by the market, there are bound to be possible fluctuations in both directions - revaluation and devaluation. And it would be abnormal if it only goes up. That's why the International Monetary Fund issued a statement on Wednesday, saying the move "appears a welcome step."
A number of Americans are looking forward to seeing the cost of China's manufacturing industry rising to the level of the U.S.. The truth is, China shares the same wish, because it would mean that our social welfare will also reach the same level. Unfortunately, the reality is another story. In labor-intensive industries, Chinese workers are having a harder time than those in the U.S.. Our "fruit" should not, and will prove to be impossible for Americans to easily take away.
The exchange rate of the yuan is at market price, as well as at a reasonable price.
