The U.S. Treasury has designated China as a currency manipulator for the first time since the Clinton administration in 1994, in a statement released on Monday, 5th August.

As a result of this designation, the Treasury said:

Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.

China accused of devaluing currency to gain unfair competitive advantage

On Monday, the yuan fell past 7 against the U.S. Dollar for the first time since 2008.

In its statement, the U.S. Treasury Department said that China had been taking "concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves". 

In essence, by devaluing its currency, Chinese exports become cheaper in price compared to exports from other countries with a stronger currency.

The U.S. Treasury added:

...the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade.

They also claimed that the People's Bank of China (PBOC) had openly acknowledged that the PBOC has had extensive experience manipulating its currency, referring to PBOC's statement:

“PBoC has accumulated rich experience and policy tools, and will continue to innovate and enrich the toolbox...The People's Bank of China has the experience, confidence and ability to keep the RMB exchange rate basically stable at a reasonable and balanced level.”

Called out China for violating commitments

The U.S. Treasury also reported that China's actions went back on its promise to "refrain from competitive devaluation" during the G20 summit in June 2019.

The Treasury also urged China to "enhance the transparency of China’s exchange rate and reserve management operations and goals".

China denies allegations of currency manipulation

In a statement on Monday, the Governor of PBOC Yi Gang had said that they have not engaged in competitive devaluation, and added that "China will abide by the spirit of the G20 leaders’ summit on the exchange rate issue".

Despite the breakthrough of the yuan, Yi maintained that the fluctuation was "driven and determined by the market".

Read more about the U.S. and China trade war here:

Cover photo via hudiemm/Getty Images