China’s central bank weakened its currency fixing to the lowest level since March 2011 setting the reference rate at 6.5693 per dollar.
The move is aimed at boosting exports potential in the run up to the Fed’s interest rate hike. However, the regulator ignores the risk that Chinese companies can default on their US currency debt.
The devaluation by 3% adds $25.6 billion to Chinese companies' annual interest payments.
Last summer, China's central bank announced plans to weaken its currency fixing in order to make the yuan more market-driven and as part of its commitment to economic liberalization.
However, being in economic rivalry with the United States, the People’s Bank of China will not let its currency free float. According to people close to the PBOC, on January 4, the central bank behind closed doors ditched the market-based mechanism for valuing the yuan.
The central bank decided to return to the old way of adjusting the yuan’s value based on the Chinese government’s needs.
FX.co ★ China devalues yuan to lowest since 2011
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