China is in the midst of a high-wire balancing act over the yuan.
The currency plunged against the dollar at the start of this year, fueling turmoil in markets around the world. But it has recently clawed back much of those losses, leaving investors guessing on where it’s headed next.
Despite some recent reforms, Beijing still retains significant control over trading in the yuan. But its task has become a lot trickier amid slowing economic growth and efforts to gain global acceptance of its currency. Huge sums of capital have poured out of China, and the country’s central bank has had to delve into its foreign-currency war chest to prop up the yuan.
The big fear is a sharp devaluation of the yuan that “could trigger significant financial market volatility, generating shock waves that would affect the wider global economy,” said Andrew Colquhoun, a senior director in Asia for the ratings agency Fitch.