BREAKING NEWS : Indiana coronavirus cases increase to 47,432; 2,494 deaths Full Story
BREAKING NEWS : Allen County reports 18 new COVID-19 cases Full Story

This is how China controls its currency

The yuan has become caught up in the trade fight between China and the United States.China's currency...

Posted: Aug 17, 2018 12:19 PM
Updated: Aug 17, 2018 12:19 PM

The yuan has become caught up in the trade fight between China and the United States.

China's currency has declined around 9% versus the US dollar since April and is trading near its lowest level in more than a year.

The fall has drawn the attention of President Donald Trump, who has previously accused China of keeping the value of its currency artificially low to boost its huge export industry. The yuan is "dropping like a rock," he said last month.

How much control does Beijing have over what its currency does?

A different kind of currency

The yuan doesn't trade freely like other major currencies such as the dollar and the pound. Every morning, China's central bank sets a "band" within which the yuan's value is only allowed to move 2% up or down.

Related: Is a currency war coming?

China has historically had reasons for wanting to keep its currency on a tight leash, said Aidan Yao, a senior economist at money manager AXA Investment Managers.

When China was first opening up its economy in the 1970s and 1980s, it was in the country's interest to keep the yuan artificially low to make its growing export industry more competitive against Asian rivals, he said.

Another reason is stability. China escaped the worst of the Asian Financial Crisis in the late 1990s, which battered the currencies of nearby countries, because it was largely shut off to foreign investors.

The People's Bank

Like the Federal Reserve in the United States, China's central bank sets interest rates to help guide the economy, which can also influence the value of the currency.

The People's Bank of China (PBOC) also uses other tools, like dictating how much cash Chinese banks must keep in reserve.

But the PBOC works differently. It's not independent of the ruling Communist Party, so it ultimately takes its orders on monetary policy from China's top leaders.

The central bank has been known to intervene in the markets either through state-owned banks or by delving into its vast foreign currency war chest to prop up the yuan.

It also drops the occasional big surprise, like when it devalued the yuan in 2015.

"The PBOC is still a major player in the foreign exchange market," Yao said. "You don't really see that same kind of intervention with the Fed, European Central Bank or the Bank of Japan."

Related: China's yuan is falling against the dollar. Here's what's going on

The recent plunge

Despite China's ability to play a significant role in how the yuan trades, analysts are skeptical it has driven the currency's recent drop against the dollar and other major currencies.

They say the escalating trade war with the United States and concerns over a slowdown in the Chinese economy have helped push the yuan lower at a time when the Federal Reserve is steadily raising interest rates. That policy makes it more attractive for investors to hold US dollars, prompting them to sell other currencies.

Related: China cuts taxes to protect its economy from the trade war

Even though a weaker yuan makes Chinese exports cheaper, helping offset the impact of US tariffs, analysts argue that Beijing is more concerned with supporting the yuan at the moment. They point to a recent measure Chinese authorities introduced that made it more expensive to bet against the currency.

Such moves are a "signal of intent" that the Chinese government wants a stable currency, said Viraj Patel, a foreign exchange strategist at investment bank ING.

Even though the yuan has fallen sharply in the past couple of months, the PBOC has said in recent statements that it's seeking to keep the yuan broadly stable.

What next?

China wants markets to eventually play a far greater role in determining its currency's value. But it has been gradual process.

Over the past decade, a market has grown for investors to buy and sell a more freely traded version of the currency in financial centers outside mainland China like Hong Kong, London and New York. But its value is still strongly linked to the yuan's price inside China.

Related: The US-China trade war will spill into other Asian economies

Other initiatives in recent years, such as a stock- and bond-trading links with Hong Kong, have made it easier for foreign investors to buy and sell assets priced in yuan.

"China wants to raise its influence in the global financial system," Yao said.

Indiana Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 46915

Reported Deaths: 2681
CountyConfirmedDeaths
Marion11499683
Lake5053242
Elkhart316443
Allen2717128
St. Joseph186366
Cass16369
Hamilton1518100
Hendricks1386100
Johnson1254118
Porter71237
Tippecanoe6778
Madison64864
Clark63844
Bartholomew58244
Howard56057
LaPorte55326
Kosciusko5124
Vanderburgh4806
Jackson4653
LaGrange4657
Noble45728
Hancock43735
Boone43443
Delaware42949
Marshall4273
Shelby42025
Floyd37144
Morgan32531
Montgomery29320
Grant29026
Clinton2852
Monroe26628
Dubois2646
White26010
Decatur24832
Henry24315
Lawrence23624
Vigo2288
Dearborn22723
Harrison21022
Warrick21029
Greene18432
Miami1812
Jennings17111
Putnam1688
Scott1607
DeKalb1594
Daviess14116
Orange13523
Wayne1346
Perry1279
Steuben1262
Franklin1248
Jasper1142
Ripley1147
Carroll1102
Wabash1102
Fayette987
Newton9710
Whitley884
Starke853
Randolph784
Huntington712
Wells711
Jefferson701
Fulton681
Jay680
Washington661
Knox630
Pulaski621
Clay604
Gibson592
Rush563
Adams481
Benton480
Owen471
Sullivan441
Brown381
Blackford372
Posey360
Spencer351
Fountain302
Tipton301
Crawford290
Switzerland260
Martin220
Parke220
Ohio140
Warren141
Union130
Vermillion130
Pike90
Unassigned0193

Ohio Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 55257

Reported Deaths: 2903
CountyConfirmedDeaths
Franklin9825417
Cuyahoga7392372
Hamilton5605197
Marion273038
Lucas2669302
Pickaway218441
Summit2079206
Montgomery191826
Mahoning1805231
Butler151144
Columbiana128860
Stark1079112
Lorain98367
Trumbull91665
Warren81421
Clark7619
Belmont54322
Delaware54115
Fairfield52916
Tuscarawas52910
Medina50632
Lake48018
Miami45531
Licking44212
Portage42858
Ashtabula42544
Wood40451
Geauga39942
Clermont3906
Wayne35951
Richland3255
Allen30540
Mercer2788
Darke24525
Greene2449
Erie23422
Holmes2203
Huron1992
Madison1928
Ottawa13923
Crawford1345
Washington13020
Putnam12615
Sandusky12614
Hardin12012
Morrow1161
Ross1133
Auglaize1044
Coshocton902
Monroe8817
Jefferson832
Union801
Hancock781
Hocking788
Muskingum761
Preble701
Williams682
Guernsey673
Lawrence670
Clinton660
Shelby644
Fulton610
Ashland581
Carroll583
Logan581
Wyandot585
Brown541
Defiance493
Fayette460
Knox451
Highland441
Athens431
Champaign391
Scioto380
Seneca332
Perry321
Van Wert320
Henry290
Paulding230
Adams221
Pike220
Vinton222
Jackson180
Gallia141
Harrison121
Meigs110
Morgan110
Noble110
Unassigned00
Fort Wayne
Clear
90° wxIcon
Hi: 92° Lo: 64°
Feels Like: 96°
Angola
Clear
86° wxIcon
Hi: 89° Lo: 64°
Feels Like: 89°
Huntington
Broken Clouds
90° wxIcon
Hi: 90° Lo: 65°
Feels Like: 95°
Decatur
Broken Clouds
88° wxIcon
Hi: 92° Lo: 64°
Feels Like: 89°
Van Wert
Broken Clouds
88° wxIcon
Hi: 93° Lo: 64°
Feels Like: 89°
More Heat & Humidity Sunday
WFFT Radar
WFFT Temperatures
WFFT National

Community Events