An employee piles bundles of yuan notes in an offshore bank. (Photo : Getty Images)
The efforts of the People's Bank of China (PBOC) to keep the yuan's decline may further lead U.S. president-elect Donald Trump to punish China, which it had earlier accused of manipulating its currency, analysts said.
Trump had earlier said that he will charge tariffs on Chinese goods sold in the country if the U.S. does not get a "better deal" which includes a reversal in the yuan's value. With a weaker yuan, Chinese goods become more competitive in global markets.
Although the Chinese government has been trying to manipulate its currency, it was aimed at strengthening the Chinese currency, rather than weakening it, an article by CNBC said.
While Chinese exporters may benefit from a weaker local currency, it has also caused a surge in capital outflow, which China has been trying to curb.
Trump's declaration that China is a "currency manipulator" will help the U.S. push for a "better deal" and could help the U.S. Treasury Department to initiate negotiations with China.
However, it was not clear what the U.S. Treasury would ask China to do, as China's central bank has already taken steps to support the yuan.
As part of PBOC's efforts, it has spent huge amount of its foreign exchange reserves to support the yuan. Recent data showed that the country's foreign exchange reserves dropped 10 percent last year, reducing it to only more than $3 trillion.
In the past few weeks, China's central bank also took a series of moves to intervene to support the yuan's value, which include enhancing the short-term interest rates and putting stricter controls on the amount of money that Chinese individuals can take out of the country.
Starting Jan. 1, China enforced stricter rules on foreign currency purchases as well as tougher punishment for illegal money outflows.
The country has also limited the annual purchase of foreign currencies to $50,000 while individual Chinese investors are required to fill out an application and explain the purpose of the transaction when buying foreign currencies at banks.
But despite these efforts, the yuan's value has dropped to nearly 7 percent against the dollar last year.
The yuan may continue to slide, many analysts expect.
"It's an open question how much (the Chinese currency) will have to drop before market pressure dissipates but it is probably closer to that point today than it was a year ago," Mark Williams, chief China economist for Capital Economics, said.
