If you’ve been following China’s messaging on the yuan over the past few months, the latest remarks from the PBOC today should sound rather familiar.
The central bank is once again reiterating that Beijing has neither the need nor the intention to weaken its currency in order to gain a competitive advantage in international trade. And let’s not beat around the bush here, there is a subtle dig at the US and Trump buried in that message.
In any case, the key takeaway here isn’t so much what is being said but rather how consistently Beijing is choosing to reinforce said message.
PBOC governor, Pan Gongsheng, has been making the same point for much of this year. He already did so back in March, before repeating it again in early September. As such, the latest remarks today are hardly a change in policy direction.
So, why is Beijing continuing to hammer home the same message then?
Well, I would argue that this goes beyond simply wanting to reassure markets about yuan stability. Underneath that mask, it also serves as a rather pointed reminder to the US that Beijing has no intention of engaging in competitive currency devaluation.
That is especially relevant given that Washington has a longstanding scrutiny of China’s exchange rate practices. As a reminder, the US Treasury kept China on its Monitoring List in its July currency report – citing “concerns over transparency” while stopping short of formally labelling Beijing as a currency manipulator.
Against that backdrop, China’s repeated remarks can be read as a pushback against suggestions that it might deliberately weaken the yuan to support exports.
Having said that, there is still a key difference between allowing the yuan to depreciate and deliberately engineering a weaker currency for a trade advantage. I would say for traders, the PBOC’s daily yuan fixings will still offer a better and more timely gauge of how closely policymakers want to toe that differentiating line.
This article was written by Justin Low at investinglive.com.