China's yuan falls against dollar, raising questions about weaker currency to boost exports

abcnews.go.com:

China’s yuan has dipped briefly to a 16-year low against the dollar, raising questions about whether Beijing might weaken its currency to help struggling exporters and reverse a deepening economic slump

BEIJING — China’s yuan dipped briefly to a 16-year low against the dollar Thursday, raising questions about whether Beijing might weaken its currency to help struggling exporters and reverse a deepening economic slump.

The yuan slid to 7.32 to the dollar before recovering to 7.26 following what financial analysts said appeared to be buying by Chinese banks to support the currency. That made one yuan worth about 13.8 cents.

A weaker yuan helps exporters by making their goods cheaper abroad, but Beijing has promised to avoid “competitive devaluation.” Complaints that China gets an unfair trade advantage by keeping its yuan weak is an irritant in relations with Washington and other governments.

“Will we just continue to see a sort of gradual weakening of the currency?” said Thomas Mathews of Capital Economics. “That might be one of the key channels through which they could actually support the economy.”

However, letting the yuan slide too far might cause companies and investors to question whether Beijing is changing its currency policy, Mathews said.

“They’ve had problems with this sort of thing in the past,” he said. “They’ll be pretty nervous about it.”

Economic growth declined to 0.8% over the previous quarter in the three months ending in June, down from 2.2% in January to March. That is the equivalent of 3.2% annual growth, which would be among China’s weakest in decades.

The yuan is allowed to fluctuate up or down 2% from its government-set starting price each day in tightly controlled trading. That prevents wide