China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025, as they prepare for higher U.S. trade tariffs when Donald Trump returns to the White House.
The contemplated move reflects China’s recognition that it needs more economic stimulus to combat Trump’s threats of punitive trade measures, people with knowledge of the matter said.
Trump has said he plans to impose a 10% universal import tariff and a 60% tariff on Chinese imports into the United States.
Letting the yuan depreciate could make Chinese exports cheaper, softening the impact of tariffs and creating more flexible monetary environments in mainland China.
Reuters spoke to three people who are aware of discussions about letting the yuan depreciate, but they requested anonymity because they are not authorized to speak publicly about the matter.
Financial News later published an article saying that the basis for a “fundamentally stable” yuan exchange rate remains “solid,” and that the yuan is likely to stabilize and strengthen toward the end of this year.
Allowing the yuan to depreciate next year would deviate from the usual practice of keeping the exchange rate stable, the sources said.
The tightly controlled yuan can move 2% on either side of a daily midpoint set by the central bank. Policy comments from senior officials often include commitments to keep the currency stable.
Read more: Chinese exports and imports slow down ahead of Trump’s tariffs
Experts say the yuan should be pegged to other currencies
Although the central bank is unlikely to say it will no longer defend the currency, it will emphasize allowing markets more power to decide the value of the yuan, a source with knowledge of the matter said.
At a meeting this week at the Politburo, a decision-making body of Communist Party officials, China pledged to adopt an “appropriately loose” monetary policy next year, marking the first easing of its policy stance in about 14 years old.
The comments did not include a reference to the need for a “basically stable yuan,” which was last mentioned in July but was also not included in the September reading.
Yuan policy has figured heavily in financial analysts’ notes and other think tank debates this year.
In a paper published last week by leading think tank China Finance 40 Forum, analysts suggested that China should temporarily switch from pegging the yuan to the US dollar to pegging it instead to a basket of non-dollar currencies, particularly the euro, to ensure that the exchange rate is flexible during a period of trade tensions.
A second source with knowledge of the central bank’s thinking told Reuters that the People’s Bank of China has considered the possibility of the yuan falling to 7.5 per dollar to counter any trade shock.
This is a depreciation of approximately 3.5% from current levels, around 7.25.
During Trump’s first term as president, the yuan weakened more than 12% against the dollar during a series of tariff announcements between March 2018 and May 2020.
With information from Reuters
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