Unexpected Drop in Value of China’s Yuan

The largest drop of China's Yuan since its revaluation in 2005. (Swimparallel/Flickr)
The largest drop of China's Yuan since its revaluation in 2005. (Swimparallel/Flickr)

Several news outlets reported that on Friday Feb. 28, the value of China’s yuan currency, also known as renminbi, fell by 1 percent. According to Business Insider, this is the largest drop since its revaluation in 2005. This shocked investors, but since the value of the yuan is largely controlled by Beijing policymakers, few should be surprised.

According to Business Insider:

After rising 3% against the U.S. dollar in 2013, the onshore yuan (CNY) weakened against the greenback last week. The offshore yuan (CNH) has also weakened.

This comes on the back of efforts by China’s central bank, the People’s Bank of China (PBoC), to curb yuan appreciation, forcing many investors out of bets that the currency will continue to rise.

The yuan is believed by economists the world over to be undervalued by the Chinese government to gain an economic advantage in world markets. So why would it lose its value? According to an article in Time:

There is also some talk, however, that China is purposely pushing the yuan down in value to give its exports a bit of a lift amid the nation’s decelerating growth. If that proves true, and the depreciation continues, the currency could again become a source of dispute and tension between Beijing and Washington.

For better or worse, 2014 is likely to be a significant year of change for the Chinese economy, and the impact those changes will have upon world markets is yet to be seen.

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