How low can yuan go: China lets the renminbi fall for third consecutive day

Jessica Morris
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China's central bank is steadily devaluing the currency (Source: Getty)

China sought to allay fears that the renminbi could enter into free-fall, as it devalued the currency for the third consecutive day.

During a press conference in the early hours of this morning, the People's Bank of China (PBoC) said the strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided "strong support" to the exchange rate.

Earlier it cut the reference point by 1.1 per cent from the previous session to 6.4010 yuan for $1. But this was still smaller than the cuts seen earlier this week. On Tuesday it dropped the reference point by 1.9 per cent and then by 1.6 per cent on Wednesday.

The reference point is a guiding rate, from which trade can rise or fall by two per cent throughout the day.

Some commentators fear that the devaluation could spark a global "currency war". They've also accused Beijing of unfairly boosting demand for its exports.

But the International Monetary Fund said the renminbi's devaluation was a "welcome step". This is because it should give market forces a greater role in determining the exchange rate.

"Regarding the ongoing review of the IMF's SDR basket (reserve currency assets defined and maintained by the IMF), the announced change has no direct implication for the criteria used in determining the composition of the basket," the organisation said.

"Nevertheless, a more market-determined exchange rate would facilitate SDR operations in case the Renminbi were included in the currency basket going forward."

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