There is a message going around on WhatsApp stating that China has decided to cancel the dollar peg in its stock exchange transactions and decided to replace it with the yuan.
*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.
Upon investigation, we found that no such statement had been made by China’s central bank, the People’s Bank of China (PBoC). While China might be re-pegging the renminbi/yuan’s exchange rate against the US dollar to bring under control the looming threat of a financial crisis during the ongoing pandemic, there are no reports that mention complete de-pegging.
Pegging a currency to the US dollar refers to a country’s central bank maintaining a fixed exchange rate of its currency against the US dollar. Historically, China has de-pegged the yuan once, in 2005, only to re-peg it in a few years after the 2007-08 global recession, according to the Yuan’s Wikipedia page. (Link)
The message claims that “the dollar has become non-existent in Chinese trading and the US dollar will fall strongly against the Chinese yuan”, which is untrue. The yuan is not a free-floating currency, and its exchange rate with the US dollar is pegged on a daily basis by the PBoC. It allows currency trading to take place within a 2% margin around the pegged value.
In a report by CNN, Chen Yulu, vice governor of PBoC indicated in March that the yuan-dollar exchange rate would continue to fluctuate around 7 RMB against the US dollar, owing to China’s vast foreign exchange reserves. (The exchange rate is 7.06 yuan to 1 USD as of May 02, 2020.)
South China Morning Post spoke to various analysts in a report, who have the opinion that China’s reluctance to devalue their currency despite the current economic scenario “pointed to the central bank considering the adoption of a de facto peg in the yuan exchange rate.”
China and the US signed a trade deal in February this year, which contained a provision prohibiting China from competitively depreciating the yuan. De-pegging the yuan from the US dollar would be out of the question after signing the trade deal.
The analysts also told South China Morning Post that re-pegging the yuan to the dollar would help stabilize the Chinese economy during the pandemic.
The pegged exchange rate system has drawn criticism in the past, as it gives China unfair trading advantages by allowing it to keep the yuan artificially undervalued as compared to the dollar. De-pegging the yuan would not be a smart move by an economy that enjoys many advantages of having a semi-floating exchange rate.
According to a report by Forbes, China is nowhere close to replacing the dollar.
The report calls the dollar “the gold standard” and states that if the Euro could not overtake the US dollar, the yuan could not even come close. Developing countries have always speculated that the yuan would be the currency to compete with the US dollar, but it is nowhere near proving those speculations right in the near future.
The circulated message is therefore false.