China’s offshore fiat exchange rate against the US dollar recently broke through the 7:1 mark for the first time in more than two years after hitting a 2022 low of 7.0188 yuan per dollar on September 15. with other world currencies falling in 2022. Likewise, the yuan’s decline has been driven by a stronger U.S. dollar.
The Decline of the RMB
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The Chinese currency’s offshore exchange rate against the US dollar broke through the 7:1 mark against the dollar after trading at 7.0188 on September 15, 2022. It was the first time in more than two years that the exchange rates of both currencies exceeded this benchmark. However, on the same day, the yuan onshore exchange rate did not breach the 7:1 threshold.
According to areportfrom the Economic Times, the depreciation of the yuan against the dollar is against the backdrop of a stronger dollar.
and the currency’s decline came amid growing concerns that China’s economy may be slowing.
However, according to the report, the Chinese central bank’s attempts to support the economy through interest rate cuts in August sparked the yuan’s 3% depreciation.
The dilemma the People’s Bank of China (PBOC) is currently facing, said Ken Chang, chief Asia FX strategist at Mizuho Bank.
The PBOC is protecting against the RMB exchange rate breaching 7 soon, and a rate cut would go against that objective.
Zhang is also quoted in anotherreportas saying that the PBOC is no longer interested in preventing the yuan from breaking through 7 to the dollar and will try to “slow and smooth the pace of yuan depreciation.”
The soaring dollar
The Economic Daily notes that the yuan is not the only currency suffering from dollar appreciation. According to the report, Japanese authorities are also alarmed by the dollar’s appreciation, with the exchange rate between the currencies rising from 115 to 1 on January 2, 2022 to over 143 to 1 on September 20.
Just like the yen, the euro, the single currency of the European Union, began trading at around €0.88 to the dollar, but reached greenback and parity on August 21, 2022. With the exception of a few currencies, such as the Zambian kwacha and the Russian ruble, many other currencies have struggled against the dollar.
Some economists see the U.S. Federal Reserve’s attempts to lower U.S. inflation through periodic marginal increases in interest rates as one possible reason for the dollar’s rise against other currencies.
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