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A risky calculation of currency war

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U.S. Dollar and Japan Yen notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White

The term “currency war” is coming back in vogue and has become a new issue on the international arena. Last week US President Donald Trump publicly accused China of manipulating its currency. “Chinese currency is dropping like a rock,” he said. Mr Trump also lashed out at the EU, saying the latter is promoting the devaluation of the euro. But US Treasury Secretary Steven Mnuchin said on Sunday during the G20 meeting of finance ministers and central bank governors in Buenos Aires, Argentina, that there’s no chance of a currency war erupting.

Moving from a trade war to financial war would without a doubt add some extra chaos to the world economy. Can any country be certain that it will definitely emerge the winner? The whole of Chinese society has no interest in this headlong rush toward danger. The country bases its governance on the reduction of risk and uncertainty. The biggest uncertainty in today’s world is Mr Trump. The White House’s next move is probably the most uncontrollable thing.

The White House is calculating every day, fantasizing that every country is deliberately against the US. The White House and some US elites suspect that Beijing is deliberately depreciating the yuan so as to offset the negative impact of increased tariffs on Chinese imports entering the US.

A depreciating yuan would be favorable to China’s exports, but also put pressure on China’s capital flight, stimulate inflation and affect the market’s expectation of the country’s economic outlook. Why would China manipulate toward such a mixed blessing?

The renminbi’s recent fast depreciation is obviously a result of multiple market factors. And among them, the trade war launched by the US is a major driving force. The US is now dominating the global trade and financial rules. It can easily tilt the negotiating process in favor of US interests.

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