The Cable

The Cable goes inside the foreign policy machine, from Foggy Bottom to Turtle Bay, the White House to Embassy Row.

Update: Now We Think We Know What Happened to China’s Currency

The Chinese might just have answered Donald Trump.

This photo illustration taken on September 29, 2016 shows Chinese 100 yuan, 10 yuan and one yuan notes in Beijing. / AFP / FRED DUFOUR        (Photo credit should read FRED DUFOUR/AFP/Getty Images)
This photo illustration taken on September 29, 2016 shows Chinese 100 yuan, 10 yuan and one yuan notes in Beijing. / AFP / FRED DUFOUR (Photo credit should read FRED DUFOUR/AFP/Getty Images)
This photo illustration taken on September 29, 2016 shows Chinese 100 yuan, 10 yuan and one yuan notes in Beijing. / AFP / FRED DUFOUR (Photo credit should read FRED DUFOUR/AFP/Getty Images)

Monday night, a sharp drop in the value of the Chinese renminbi sparked speculation about a deliberate policy move by Beijing. Overnight, media outlets including Bloomberg and the Financial Times reported that a technical glitch, perhaps caused by faulty third-party data, made the yuan seem like it was losing value even when it wasn't. Below is Monday's original story, including speculation about technical woes as well as broader concern in the foreign-exchange market about possible tensions between China and the United States.

On Monday, the Chinese renminbi fell by about 10 percent against the dollar in a matter of hours, one of the biggest one-day moves since Beijing allowed its money to partially float. The yuan dropped from about 6.8 to the dollar to about 7.5 -- pushing China’s currency to the cheapest level since the 2008-09 financial crisis.

The sudden drop in the currency, also known as the yuan, is telling — if only because Beijing carefully controls its currency fluctuations. Daily movements are sharply limited, and leadership intervenes to prop up the currency — or let it slide — as political whims dictate.  This year, the yuan has already gotten about 5 percent cheaper against the dollar, which makes Chinese goods more competitive against U.S. exports, and makes Chinese exports cheaper and more enticing for American consumers.

Monday night, a sharp drop in the value of the Chinese renminbi sparked speculation about a deliberate policy move by Beijing. Overnight, media outlets including Bloomberg and the Financial Times reported that a technical glitch, perhaps caused by faulty third-party data, made the yuan seem like it was losing value even when it wasn’t. Below is Monday’s original story, including speculation about technical woes as well as broader concern in the foreign-exchange market about possible tensions between China and the United States.

On Monday, the Chinese renminbi fell by about 10 percent against the dollar in a matter of hours, one of the biggest one-day moves since Beijing allowed its money to partially float. The yuan dropped from about 6.8 to the dollar to about 7.5 — pushing China’s currency to the cheapest level since the 2008-09 financial crisis.

The sudden drop in the currency, also known as the yuan, is telling — if only because Beijing carefully controls its currency fluctuations. Daily movements are sharply limited, and leadership intervenes to prop up the currency — or let it slide — as political whims dictate.  This year, the yuan has already gotten about 5 percent cheaper against the dollar, which makes Chinese goods more competitive against U.S. exports, and makes Chinese exports cheaper and more enticing for American consumers.

Monday evening, there was still plenty of confusion over the nature of the yuan’s plunge. Some ascribed it to a technical error on currency trading platforms; others confirmed that the movement, while brusque, was genuine — but they had little idea what drove the trading.

 Could Beijing have have just answered President-elect Donald Trump’s weekend provocations?

On Sunday evening, as he had before on the campaign trail, Trump took aim at China’s currency policy, tweeting, “Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete)”? Paired with another tweet railing against China’s militarization of reefs and atolls in the South China Sea, Trump appeared to link the economic and security aspects of the U.S. relationship with China in a way seldom done before in Washington.

The question is whether Beijing, by allowing its currency to suddenly slide, thus giving its export-based economy an immediate boost, gave Trump an immediate and provocative answer to his tweets — or whether global currency traders, seeing signs of increased tension between China and the United States simply got bearish on Chinese money.

Trump’s unprecedented phone conversation with the president of Taiwan on Friday rattled Beijing and sent a clear signal that China hawks have a prominent place in Trump’s emerging national-security team.

Or perhaps it was just a trading-platform glitch, after all. The only thing certain is that there will be plenty more turbulence — and not just for the yuan — as the Trump administration and Chinese leaders in Beijing come to grips with the world’s most important rivalry.

Photo credit: FRED DUFOUR/AFP/Getty Images   

More from Foreign Policy

A propaganda poster from the 1960s shows Chinese leader Mao Zedong.
A propaganda poster from the 1960s shows Chinese leader Mao Zedong.

Xi’s Great Leap Backward

Beijing is running out of recipes for its looming jobs crisis—and reviving Mao-era policies.

A textile worker at the Maxport factory in Hanoi on Sept. 21, 2021.
A textile worker at the Maxport factory in Hanoi on Sept. 21, 2021.

Companies Are Fleeing China for Friendlier Shores

“Friendshoring” is the new trend as geopolitics bites.

German children stand atop building rubble in Berlin in 1948.
German children stand atop building rubble in Berlin in 1948.

Why Superpower Crises Are a Good Thing

A new era of tensions will focus minds and break logjams, as Cold War history shows.

Vacationers sit on a beach in Greece.
Vacationers sit on a beach in Greece.

The Mediterranean as We Know It Is Vanishing

From Saint-Tropez to Amalfi, the region’s most attractive tourist destinations are also its most vulnerable.