Yuan Slump Forces China Into Balancing Act to Help Recovery
- Currency’s depreciation seen as policy option, but poses risks
- Offshore yuan is second-worst performer in Asia in 3Q
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The Chinese yuan’s slump to its weakest against the dollar in almost two years adds to what is already a precarious balancing act for Beijing, which is seeking ways to prop up its struggling economy without stoking financial instability.
There’s opportunity in the falling exchange rate, which cushions exporters and provides an additional source of support as the People’s Bank of China lowers interest rates and as provincial governments borrow to fund infrastructure. Authorities have been trying to put a floor under a slowdown spurred by China’s deepening real estate crisis, as well as an ongoing hit to consumer and business sentiment fueled by a stop-start Covid containment strategy.