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Renminbi's worst month ever sparks U.S.-China currency war fears

Section: Daily Dispatches

Gabriel Wildau and James Kynge
Financial Times, London
Sunday, July 1, 2018

China-s currency suffered its largest-ever monthly fall against the U.S. dollar in June, sparking concern that Beijing is prepared to use currency devaluation as a weapon in an escalating trade war with the United States. 

From 2005 to mid-2014, China systematically intervened in its currency markets to weaken the value of the renminbi, sparking accusations that Beijing was seeking an unfair competitive advantage for its exporters. 

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U.S. President Donald Trump revived those accusations during his 2016 campaign, though China had already switched to a policy of supporting the renminbi to prevent capital flight.

But the renminbi weakened by 3.3 percent against the dollar in June, the worst single-month decline since China established its foreign exchange market in 1994. Analysts say that so far the move looks more like market forces than an act of currency war. Still, they warn that continued weakness could further inflame trade tensions. ...

In late 2015 China's central bank announced it would begin targeting renminbi stability against a broad basket of global currencies, shifting away from a narrow peg to the dollar. That policy implies the renminbi should weaken alongside other currencies in periods of broad dollar strength. ... 

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