On Monday, August 4th, 2019 the United States Treasury took steps to formally label China a currency manipulator. The actions taken are rare and signify that trade escalations between the world’s two largest economies are no where near ending.
“In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past,” the Treasury Department said in a statement that followed the People’s Bank of China’s decision to let its currency, the renminbi, fall to the lowest level in more than a decade.
The US Treasury said it will now “engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”
In response to the US designation China is soon to respond in some magnitude of its own. Further, “China will view this as unjustified and, therefore, is likely to retaliate, thereby signaling further tension escalation," said Mohamed A. El-Erian, chief economic adviser at Allianz. "It signals a new step in the weaponization of economic instruments, also raising the probability of both trade and currency wars.”