U.S. raising interest rates vs China loosening money… The yuan plummets due to a decrease in exports and a narrowing interest rate gap

Although the dollar strengthened due to US austerity measures and the Ukraine crisis, while the currencies of emerging countries weakened, the exchange rate of the yuan has been stable at the low-mid level of 6 yuan per dollar for the past year. Irrespective of the dollar’s appreciation, the yuan also continued its strong trend.

Why did the renminbi show a modest appreciation compared to other emerging market currencies? Experts cite three main factors.

First, exports are brisk. Exports to China hit a record high last year as factories in other countries stopped due to the pandemic. The current account surplus also broke a record high. Foreign direct investment (FDI) also recorded the highest level last year. As the dollar overflows in China, the dollar depreciates and the yuan depreciates.

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