It turns out that some economies can’t always manipulate their currencies, even as hard as they try. In the Journal yesterday was a story about the manipulation of the value of China’s currency that fell the day before because China wanted it to, but didn’t stay down so that had the desired effect. It fell, by the way, by the largest amount in the past 18 months, .7%.
China tried hard to offset the tariffs threatened by the US by devaluing its currency. That makes those goods cheaper in China and more expensive in the US. They were trying to match the numbers on their costs to the amount of tariffs the US was imposing. It would have been a cute trick if it had worked, but the central bank is going to have to do quite a bit more to make that happen because the currency did not stay down. It went back up today and hardly moved in trading in China itself which allows trading at 2% less than the official exchange rate.
If the Yuan goes down too fast, the ultimate consequence is lower investment in China. We know that, but the threat is demonstrated anyway without much consequence to China’s economy. If they have to do it over a longer term, the manipulation may cost them as much as it does the US.
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