China’s ambitions for a “powerful currency,” as envisioned by President Xi Jinping, face significant obstacles with the return of Donald Trump to the White House. The yuan, already under pressure due to economic headwinds, may see accelerated depreciation as analysts predict Trump could reignite a trade war. The Chinese currency risks breaching its lowest levels in nearly two decades, with forecasts suggesting a potential 10% decline against the U.S. dollar by 2025.
Economic factors contributing to the yuan’s vulnerability include weaker government bond yields compared to the U.S., reduced foreign investment, and concerns about deflation. As traders bet against the currency, the People’s Bank of China (PBOC) may intervene through measures like stronger daily fixings or managing offshore yuan liquidity. However, Beijing is likely to adopt a controlled depreciation strategy to support exports and cushion the economy from potential tariff shocks.
The yuan’s stability remains central to China’s broader goal of internationalizing its currency and enhancing its global financial influence. Ironically, Trump’s preference for a weaker dollar could indirectly ease some pressure on the yuan, though Wall Street analysts doubt he can achieve this policy shift.
China’s success in stabilizing the yuan amid these challenges will be crucial as the nation seeks to position itself as a leading economic and financial power on the global stage.
