China Sets New Midpoint Rate for the Yuan; Shares Trading Suspended

On Thursday, the People’s Bank of China (PBOC) set the official midpoint rate for the yuan, also known as the renminbi (RMB), at 6.5646 per USD, the lowest rate since March 2011, Reuters reports. The new rate of the currency peg was 0.5 per cent lower than the day before, and the biggest daily drop since last August, when the nearly 2 per cent devaluation also roiled markets.

China’s acceleration of the yuan’s depreciation sent regional currencies and stock markets tumbling, as investors feared that China could trigger a competitive currency devaluation amongst its trading partners. At the time of writing, the yuan was weakening by 1.18 per cent against the dollar, following a 3.5 per cent fall against the Japanese yen and 0.8 per cent against the euro earlier this week.

Weak Economic Performance

The PBOC’s move pulled regional currencies into a swirl as the Australian dollar, often used by foreign Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term dealers as a liquid proxy for the yuan, fell half a USD cent in the blink of an eye. Nevertheless, in an attempt to calm down the markets, the PBOC’s China Foreign Trade System (CFETS) repeated today that there was no basis for the yuan’s continuous depreciation and that it was stable against a basket of currencies in 2015.

China's reserves fell by $87.2 billion in November to $3.44 trillion, the lowest level since February 2013

Weak economic data drew China’s currency and Stock Exchange Stock Exchange A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin Read this Term down. In addition, China's reserves fell by $87.2 billion in November to $3.44 trillion, the lowest level since February 2013. According to the Reuters report, this week's slide comes ahead of the expected release later in the day of China's foreign exchange reserve data for December, which traders fear will show a further sharp decline as investors pull money out of the slowing economy.

Besides currency issues, China’s stock markets trade was automatically suspended for the rest of the day only 29 minutes after opening due to a sharp 7 per cent fall. For the second time this week, China’s new stock exchange circuit-breaking mechanism came into action, stopping trade.