Central government officials may allow the yuan to depreciate in 2025, Reuters reports, citing unnamed people familiar with the matter. The move may soften the impact of incoming US President Donald Trump’s promised tariff hikes, Reuters reports.
The sources said that policymakers and top leaders were in discussions over how to handle Trump’s proposed 60 percent tariffs on Chinese imports when his presidency begins next month. The anticipated protectionist measures have also prompted recognition in China that more economic stimulus may be needed, the sources added.
While weakening the yuan would make Chinese exports relatively cheaper, it would also deviate from Beijing’s usual practice of keeping the foreign exchange rate stable.
[See more: What the politburo’s language implies about the nation’s economy in 2025]
At the same time, according to one observer, adjusting the currency could be a short-sighted decision that runs the risk of a “tariff cascade.” HSBC’s chief Asia economist, Fred Neumann, told Reuters that “Other nations then essentially will say, well, if the Chinese currency is weakening dramatically, then we may not have a choice [but] to impose import restrictions on goods from China ourselves.”
Reuters’ anonymous sources say that China’s central bank is considering letting the yuan drop from its current rate of 7.25 per US$1 to 7.5 – a roughly 3.5 percent depreciation – to counteract trade shocks. In Trump’s first term as US president, the yuan weakened more than 12 percent against the dollar during a tit-for-tat tariff battle between March 2018 and May 2020.
At a Politburo meeting this week, China pledged to adopt an “appropriately loose” monetary policy next year, marking the first easing of its fiscal stance since the Global Financial Crisis in 2008.
