Amid a continuing weakening of the Chinese currency, the People’s Bank of China (PoBC) has signalled new moves that could accelerate the slide in the renminbi’s value and trigger a currency war among export-dependent countries in Asia and internationally.
Last Friday, as the renminbi hit its weakest level against the US dollar in more than four years, the PoBC announced that it intended to change the way in which the renminbi’s value is fixed. In the future, the renminbi will be measured against a basket of currencies, rather than the dollar, opening the door for further devaluation.
China is under pressure from a rising US dollar, compelling the PoBC to intervene to maintain the value of renminbi within its fixed band. This has led to a depletion of foreign currency reserves, which stood at $3.43 trillion in November, down 14 percent from the peak in June 2014. The renminbi is likely to come under greater pressure if the US Federal Reserve announces an expected rise in US interest rates later this week.