According to Bloomberg, as of August, the yuan has decreased in value for the sixth consecutive month.
This is the longest value drop in China’s currency since October 2018, a tense time after the US-China trade war.
Banks, including Societe Generale SA, Nomura Holdings Inc., and Bank of America Corp., predicted that the yuan would fall even more and cross the psychological mark of 7 per dollar this year.
China’s central bank is working to prevent the yuan’s decline by setting the yuan fixing at a stronger-than-expected level for the ninth straight session. However, the US dollar is making such defensive tactics ineffective.
When the Russo-Ukrainian war broke out, the yuan was the only emerging currency that did not fall in value, and global demand for the currency increased dramatically.
This is evident in Russia and Saudi Arabia, countries that want to reduce their dependence on the US dollar and debt.
However, the market sentiment has reversed in the past months. The yuan’s role as a haven has become a major risk.
Per Hammarlund said, “With the yuan set to weaken further, other emerging markets will face downward pressure on their currencies.”
He added, “The impact will be felt the most by nations which compete directly with China on exports.”
The Zero-COVID policy, the booming real estate crisis, and China’s slowing economic growth are the main reasons why the yuan has continuously depreciated.