BEIJING — As the euro has fallen below parity with the dollar and the British pound plunges toward a one-for-one exchange rate as well, another currency is also weakening against the dollar: China’s renminbi.
For Shanghai trading on Monday morning, China’s central bank, the People’s Bank of China, fixed the initial value of the renminbi at more than 7 to the dollar for the first time in more than two years. It was the weakest fixing of the Chinese currency since July 2020, breaking through a mainly psychological barrier that the renminbi would continue to be worth between 6 and 7 to the dollar.
At the same time, the central bank on Monday tightened a technical regulation to make it slightly more difficult for traders to place large bets on a further decline in the value of the renminbi.
China’s decision to let a psychological barrier like 7-to-the-dollar be breached, while using the rule change to discourage trading against the currency, “basically meant the People’s Bank of China does not want to try to defend any particular foreign exchange level, but to slow the pace of depreciation,” said Peiqian Liu, a China economist at NatWest Markets.
The daily fixing of the renminbi’s value in Shanghai establishes a range in which the central bank will allow the renminbi to trade for the day. The central bank fixed the initial value on Monday at 7.0298 renminbi to the dollar.
In recent weeks, the Chinese currency has consistently tended to trade at the weaker end of the range, and Monday was no exception. By early afternoon, it was changing hands at about 7.16 to the dollar and approaching a level of weakness not seen since the spring of 2008.
A weaker renminbi helps make China’s exports more competitive in overseas markets, particularly the United States. Lower prices for China’s wide range of manufactured goods are starting to help reduce persistently high inflation in the United States.
But the strength of the dollar against the renminbi and other currencies — including the euro, pound and yen — also makes American exports more costly and less competitive in foreign markets.
A big part of the fall in the renminbi, which has lost roughly a tenth of its value versus the dollar this year, reflects the dollar’s strength as opposed to the renminbi’s weakness, said Larry Hu, an economist at Macquarie Group of Australia. “The renminbi against a basket of currencies this year is flat,” he said.
The renminbi’s fall is striking because China this year has run the largest monthly trade surpluses the world has ever seen. Stringent “zero Covid” policies, including the lockdowns of large cities, have crippled demand for imports in China. Exports stayed strong through midsummer, although they have also begun to falter lately.
But exporters have also been hesitant to convert the payments they receive in foreign currencies into renminbi, Mr. Hu said. Exporters have been leaving the payments in dollars in foreign bank accounts as the dollar becomes worth more and more in renminbi terms.
The weaker renminbi makes it more expensive for many Chinese companies, notably real estate developers, to repay bonds and other debts that they owe in dollars.
Sharp increases in short-term interest rates by the Federal Reserve have made it more attractive to deposit or lend money in the United States. China, by contrast, has been gradually reducing interest rates. That has helped soften a downturn in its real estate sector, but has also made it less appealing to keep money in China.
China also has some of the world’s most stringent restrictions on moving large sums of money in or out of the country, partly to keep wealthy investors from heading elsewhere when economic growth stalls, as has happened lately.
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