The Yuan’s Plunge against the Dollar Underscore Fears in China’s Economy

The yuan’s plunge against the rival dollar underscores fears that China’s floundering economy will weigh on global growth

Story by gglover@insider.com (George Glover) • Yesterday 5:13 AM
Markets Insider

• China’s yuan fell to a seven-month low against the dollar Monday.
• Its plunge underscores fears that the country’s stagnating economy could drag down global growth.
• Mega-cap US companies like Nvidia and Tesla are also majorly exposed to China.

The Chinese yuan is plummeting against its main rival the US dollar, fueling worries that a slowdown in the world’s second-largest economy will drag on global growth.

The renminbi fell as much as 0.6% Monday to just under 7.22 yuan per dollar, trading at a seven-month low versus the greenback.

The yuan’s plunge against its US counterpart comes even though the Federal Reserve paused its interest-rate hiking campaign last week, which would typically be expected to weigh on the latter currency by denting its appeal to foreign investors seeking higher yields.

The anti-dollar drive spearheaded by Asia has spread to Europe, with France growing sour on the greenback’s dominance. Here are 6 rising threats to the buck’s supremacy of global trade.

• The dollar’s supremacy in global trade faces fresh challenges as several countries float plans to use local currencies in commerce. 
• Russia and Iran are working to create a gold-backed stablecoin, while France has pursued a trade deal with China in yuan. 
• Here are 6 rising challenges to the greenback’s dominance of international trade and investment flows.

The dollar’s dominance of global trade and investment flows is facing a slew of new threats as more and more countries draft plans to boost the use of alternative currencies.

For some time now, nations from China and Russia to India and Brazil have been pushing for settling more trade in non-dollar units – with projects ranging from the use of local currencies to a gold-backed stablecoin and a new BRICS reserve currency.

Now, even Europe appears to be jumping on the anti-dollar bandwagon, with French president Emmanuel Macron recently warning against the continent’s dependence on the greenback. 

With movements to undermine the dollar’s unipolar supremacy gathering momentum, it comes as no surprise that the buck’s status as a reserve currency eroded in 2022 at 10 times the pace seen in the past two decades, according to Eurizon SLJ Asset Management.

Strategists at the asset manager found that the greenback’s share of total global reserves fell to 47% last year, from 55% in 2021 and as much as two-thirds in 2003.

For decades, the US dollar has reigned supreme as the world’s reserve currency and is widely used in crossborder trade, especially for commodities such as oil. Thanks to its relative price stability, investors see it as a safe-haven asset in times of heightened economic and geopolitical uncertainty.

The dollar was further bolstered last year by a surge in US interest rates that made it attractive to foreign investors seeking higher yields. It surged 17% during the first nine months of 2022, but has since lost some of its shine on the prospect that the Federal Reserve may soon end its rate hikes as inflation cools rapidly. 

Against this backdrop come the latest threats to the greenback’s reign — here are 6 currency projects from across the world that are ultimately aimed at undermining the dollar’s supremacy.See More

The renminbi’s fall has coincided with increased worries about the health of China’s economy after Beijing ended its hardline zero-C***D restrictions late last year, with industrial production slowing and import and export levels tumbling in 2023.

That’s reignited fears about a wider slowdown in global growth, due to China’s role as a major player in international trade and massive source of demand for goods and services.

Some analysts also worry that the slump could temper US stocks’ breakneck rally, with surging mega-cap names like Nvidia and Tesla among the companies that are most-exposed to China, according to data from Bank of America.

The People’s Bank of China – which slashed key interest rates earlier this month in a bid to revive growth – responded to the renminbi’s fall by fixing the tightly-managed onshore yuan at a rate above market expectations on both Monday and Tuesday. 

The central bank pegs the currency pegged against the greenback within a narrow range, rather than allowing for it to trade via a floating exchange rate.

The onshore yuan rose around 0.3% Tuesday, to trade at just over 7.21 yuan per dollar.