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Rough Waters for Yuan Ahead

| Nov 28, 2016 09:48 PM EST

A clerk counts stacks of Chinese yuan and U.S. dollars at a bank on July 22, 2005, in Shanghai, China.

Despite reassurances by the People's Bank of China (PBOC) regarding the stability of the yuan, the currency and its status on the world stage continues to be the subject of controversial discussions by financial professionals, policymakers and academics the world over.

Reacting to the yuan falling to its weakest since June 2008, PBOC Deputy Governer Yi Gang moved to assuage fears, stating that the currency would remain stable and that the yuan had in fact depreciated against the dollar less than other currencies.

"Referencing the yuan against a basket of currencies can better reflect the overall competitiveness of a country's goods and services," Yi added.

All is not clear skies, however, despite all the confidence.

United States President-elect Donald Trump has on numerous occasions called China out on what he alledges are "unfair trading practices" and "currency manipulation."

Despite the fact that Trump hasn't presented any proof of such practices, his rhetoric has ignited fears of a possible trade war between the two nations.

Fortunately, some in the international community are more confident in the strength of the yuan than others.

In an implicit rejection of Trump's accusations, the U.S. Treasury Department declined to label China a currency manipulator and may even remove it from a list that includes Japan, South Korea, Germany and Taiwan.

This development is a welcome addition to the vote of confidence China recently received from the International Monetary Fund (IMF), by it's inclusion of the yuan in the Special Drawing Rights basket or SDR, an international reserve composed of four other currencies.

Going by the events of the last few days, the yuan could very well be in for more dollar exchange swings in the weeks leading up to the Trump presidency.

One thing is clear though: if things do end up escalating, the recent yuan tumble will pale in comparison to what could come.

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