Since Donald Trump’s November 5 election win, the Chinese yuan has traded below the central bank’s fixing rate. That suggests markets are bracing for a weaker yuan as the former and future US president prepares to ignite massive new trade wars.
A reasonable assumption? Not if People’s Bank of China Governor Gongsheng has anything to say about it. There are many reasons why Pan – and, for now, President Xi Jinping – want a stable exchange rate versus the dollar.
The dominant one is confidence. A big yuan decline might signal to global investors that there’s an unseen major problem in Asia’s biggest economy on top of a crippling property crisis, deepening deflation and massive capital flight.
The wildcard, though, is how Trump’s coming trade wars might have Team Xi scrambling to make currency devaluation great again.