Why does china keep yuan low

SHANGHAI, Oct 21 Reuters - As China's yuan climbs rapidly to its strongest levels in six years against the currencies of the country's trading partners, a notable absence of concern and intervention by the authorities is unnerving investors.

Beijing has so far not intervened directly or verbally during the yuan's ascent since early September, which took it to 4-month highs and past 6. That silence, amid growing signs of weakness in the economy, has analysts guessing that the People's Bank of China PBOC is keeping to its word about letting market forces dictate the yuan's trajectory. One popular theory is that the currency has been left alone while authorities focus on resetting the rules and financing options for property, technology and a host of other sectors.

The alternate is that the PBOC is waiting for the Federal Reserve to begin its policy tightening, which could reduce the flow of foreign money pushing the yuan up. It wants the yuan to become a top reserve currency, much like the U.

The dollar's status in the global financial market allows the U. If the yuan were to become a popular reserve currency, it could allow China to issue more debt to better manage its domestic needs.

However, China is still not willing to lessen restrictions on fears that there will be massive capital outflows as many Chinese investors may move their money outside the country and into the international market. The yuan joined the International Monetary Fund's basket of reserve currencies in China continues to track its value against other currencies in the RMB Index.

But with a trade deal between the U. Skip Navigation. Key Points. China's yuan is being closely watched as its economy slows and Beijing remains locked in a trade war with the U. The onshore yuan fell to levels not seen since February on Monday, while the offshore yuan dropped to its weakest since it began trading in the international market.

China Renaissance forecasts the yuan will hold near 6. Macquarie anticipates the yuan will weaken slightly to 6. In May, Morgan Stanley analysts adjusted their forecast weaker to 6. The investment bank did not have updated analysis to share as of late Tuesday. Skip Navigation. Key Points.

The Chinese yuan has strengthened to three-year highs against the U. The People's Bank of China made a rare announcement Monday that financial institutions will need to increase the ratio of their foreign exchange deposits. On Wednesday, the central bank set the yuan's midpoint fix weaker against the U.

Tariffs backfiring on US, says ex-Trump adviser. How does China devalue its currency? What is the impact of a weaker yuan? Have they done this before? Image source, AFP. Last month, data showed China's economy grew at its slowest pace since the early s during the second quarter.

Why has it angered the US? Why is currency manipulation so controversial? What's next for the yuan? Analysts forecast the yuan will weaken further.