The China Foreign Exchange Trade System announced that the central parity rate of the Chinese currency, the renminbi or yuan, weakened by 336 pips to 6.8519 against the U.S. dollar on Thursday. In China’s spot foreign exchange market, the yuan is permitted to rise or fall by up to 2% from the central parity rate on each trading day. This announcement has prompted discussion about the reasons for the depreciation of the yuan, with some analysts attributing the recent slide in the currency to the ongoing trade tensions between China and the U.S.
The central parity rate of the yuan against the U.S. dollar is determined by a weighted average of prices offered by market makers before the opening of the interbank market on each business day. This rate serves as a reference for the daily trading band in China’s foreign exchange market, and any movement outside of the 2% trading band is seen as a significant development.
The yuan’s decline in value has implications for global trade and financial markets, particularly for companies that rely on China as a major trading partner. It could also lead to an increase in the cost of goods and services imported from China, as a weaker currency makes them relatively more expensive for buyers using stronger currencies like the U.S. dollar.
As with all fluctuations in currency values, it remains to be seen whether the depreciation of the yuan will continue and what its impact will be on China’s economy and the global financial system.