The Yuan’s Slide Doesn’t Have to End in Tears
When China ditched the dollar peg, too little attention was paid to the prospect the currency could weaken. That was a mistake.
Restraining orders.
Photographer: Lam Yik/BloombergIn the history of financial diplomacy, July 21, 2005, just can't get respect. More's the pity: Events that transpired on that day, when Beijing severed a long-standing link to the dollar, and the reception in Washington and Berlin, laid the ground for one of the sagas playing out in the $7.5 trillion-a-day foreign-exchange market.
They also go some way to explaining why China's recent efforts to restrain the yuan’s decline have been cast in dramatic language. Trading levels are described as lines in the sand, some shaded red. Officials are said to have vowed, threatened and even cajoled traders into scaling back bets on a weaker currency. The yuan has lost about 5% against the dollar this year. On Tuesday, it approached the limit of the range in which authorities will permit it to fluctuate — a rare occurrence.