“Some of the currency fall is money leaving China because it’s a lousy investment. And, if that continues, that will really damage the Chinese economy,” Kudlow said.
Currency strategists, however, say that China does not want a currency war and has not tried to drive the yuan to now 14 month lows— but it is also not stepping in to prevent the decline as it normally would.
China’s central bank sets a daily exchange rate for the yuan based on recent prices, and allows trading against the dollar in a band that could be as much as 2 percent above or below that level. A number of strategists say China is moving its band with the market and attempting to prevent a more rapid fall, so to avoid capital flight. The yuan is down more 6 percent since trade tensions picked up in June.
On Thursday, Goldman Sachs economists said the currency’s decline may have been behind the latest threat from the Trump administration to raise tariffs to 25 percent on another $200 billion in Chinese goods, from an earlier proposal of 10 percent. The economists said the performance of the currency may impact the U.S. decision on future tariffs.
Several U.S. administrations have threatened to call China a currency manipulator. Trump recently complained that China was keeping its currency low at the expense of the U.S., as he criticized the Federal Reserve’s interest rate policies.