Chinese yuan slips to 14-year low

Beijing: China's yuan fell to a 14-year low against the dollar Wednesday despite central bank efforts to stem the slide after US interest rate hikes prompted traders to convert money into dollars in search of higher returns.

A weaker yuan helps Chinese exporters by making their goods cheaper abroad, but it encourages capital to flow out of the economy. That raises costs for Chinese borrowers and sets back the ruling Communist Party's efforts to boost weak economic growth.

The yuan fell to 7.2301 to the dollar, its lowest level since January 2008. One yuan was worth about 13.8 cents, down 15 per cent from this year's March high.

On Wednesday, a deputy central bank governor, Liu Guoqiang, held a video meeting with Chinese bankers and told them to maintain the basic stability of the exchange rate, according to a central bank statement. It said Liu warned the bankers against betting the yuan would rise or fall. Maintaining stability is the top priority," the statement said.

The yuan has exceeded expectations it might fall to 7 to the dollar after the Federal Reserve started aggressive rate hikes to cool inflation that is at a four-decade high. The Fed has raised rates five times this year and says more increases are likely. By contrast, the People's Bank of China has cut interest rates to boost growth that fell to 2.2 per cent over a year earlier in the first six months of 2022 less than half the official 5.5 per cent target.

The yuan is allowed to fluctuate up or down 2 per cent from its starting price each day in tightly controlled trading. That prevents big daily swings, but down days can add up to a big change over time. To shore up the exchange rate, Beijing cut the amount of foreign currency deposits Chinese banks are required to hold as reserves to 6 per cent from 8 per cent as of September 15. That increases the amount of dollars and other foreign currency available to buy yuan, which should push up the exchange rate.