The Chinese yuan hit a new low on Thursday after the central bank announced reforms to make the exchange rate system more market-oriented.
The People's Bank of China reduced the yuan's reference rate to 6.4010 yuan per dollar, down another 704 basis points, this morning. This was the third cut in three days.
Since Tuesday, the yuan's reference rate has dropped by a total of 4.66% against the dollar.
The People's Bank of China held a press briefing on currency reforms on Thursday morning, saying that the rise in new yuan loans and monetary easing had affected supply and demand in the forex market, which in turn caused devaluation pressures on the yuan rate.
Chinese banks extended 1.48 trillion yuan in new yuan loans in July, much more than had been forecast. The central bank also said that the yuan's earlier midpoint deviated about 3% from market rates, and the adjustment was partially aimed at correcting that deviation.
Some foreign media outlets indicated that Tuesday's move might have been a deliberate attempt to boost exports. But Chinese central bank's Vice-Governor Yi Gang said that China's exports are doing fine, and there's no need to boost exports by adjusting exchange rates.
Yi also said that minor fluctuations will not easily affect China's schedules in terms of the opening of its forex market.
However, the effect of yuan’s devaluation has been felt overseas. Retailers and tourism service providers in Hong Kong are feeling the pinch of a cheaper yuan. Analysts also expect less mainland capital going into the Hong Kong property market.
For the world’s number one economy, commentators say that the US has been feeling the pain since Tuesday.
Yuan’s devaluation will push the US dollars to be stronger, and increase the cost of US goods in China, such as iPhones or cars, leading to lower sales by American companies in China. It will also make American exports to China more expensive.
