A message has gone viral on social media, stating that China is set to abandon its currency peg with the United States dollar (USD) in stock exchange transactions. However, BOOM did not find any official announcement supporting the claim. The People's Bank of China (PBOC) - China's central bank - is still setting daily exchange rates in line with its currency regime, with one of its deputy governor stating that he saw a continuation of the peg in the near future, at 7 yuan to the dollar.
The viral message reads as follows:
"Sudden Chinese decision shakes the corners of the entire world China surprised the world today and decided to cancel the dollar peg in the stock exchange transactions and decided to deal officially and the official link to the Chinese yuan instead of the dollar, and this is a bold and important step in China's economic history. This means that the dollar has become non-existent in Chinese trading and the US dollar will fall strongly against the Chinese yuan and may affect it in global markets. And all the global markets were stunned by the decision. The news was discussed today on the BBC World English afternoon program. It is an economic war that could lead the world to a devastating war that cannot be neglected if America acts foolishly in the face of this decision !! China 2021 will lead the world. This is China's old dream and what it planned to achieve for decades or more." |
The viral message also attributed its claims to a report by The Guardian on the PBOC's imminent launch of its digital currency, thus misleading readers. The digital currency of China would be the first digital currency in a major economy, and has already been implemented on a limited scale in certain urban places in China. The currency will be pegged to the yuan. The message states that this too is one of China's way of undermining the USD by creating an alternative payment method that is less prone to political uncertainty.
The Guardian's story can be read here.
BOOM received the message on its helpline (7700906111) multiple times.
This claim is also viral on Facebook.
Fact Check
Contrary to many world currencies whose exchange rates with other currencies are determined by market forces, the PBOC fixes the yuan to the dollar on a daily basis. In fact, the yuan is the only currency in the International Monetary Fund's (IMF) currency basket (also with the yen, the USD, the pound and the euro) that is not free-floating. The PBOC maintains a 'managed-floating exchange rate' (Sonali Das, IMF working paper, March 2019) - implying that the PBOC sets one fixed exchange rate daily, and lets currency trading take place around 2% of this fixed point (read here). The current exchange rate (the daily peg) of the USD to the yuan is 7.0571 as on April 30, 2020.
BOOM used relevant keywords to find that no news is available on the abrogation of this system.
On March 23, the PBOC's deputy governor Chen Yulu said that he expects the Chinese currency to be stable at around 7 to the USD, citing China's ample foreign exchange reserves. A number of analysts have told the South China Morning Post that this comment may be the latest indication that the PBOC was looking to re-peg the yuan to the dollar, due to the stability that the Chinese economy would get given the ongoing coronavirus pandemic.
Rather, this pegged exchange rate system is often cited to have provided China with unfair trading advantages, by letting them keep their exchange rate artificially low. When the exchange rate weakened to 7 to the USD last August for the first time since 2008, the United States termed China to be currency manipulator. A US Treasury report also acknowledged this manipulation in May 2019, where they state, "Treasury continues to have significant concerns about China's currency practices, particularly in light of the misalignment and undervaluation of the RMB relative to the dollar."
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