The offshore yuan is in a free fall, slumping to 6.6650 against the dollar, the lowest rate since the last quarter of 2010. The gap between the offshore yuan and its mainland counterpart widened sharply on Wednesday, blowing out to a record 1250 pips and reflecting growing expectations of further weakness in the currency as China’s economy slows and capital outflows accelerate, pointing to devaluation some time soon.
The onshore yuan has dropped considerably since its August devaluation and stands now at 6.5418 against the dollar. The yuan is primarily traded on the mainland and is subject to strict central bank supervision, while its offshore counterpart is accessible to everyone.
The offshore yuan was introduced in the early 2000’s to allow foreigners to settle trade and transactions in the currency and provide Beijing with a presence on the global finance stage while allowing the government to maintain control over the country’s capital account.
Offshore Yuan Looser than Counterpart
The offshore rate also moves more freely than its tightly-controlled onshore counterpart, which is only allowed to rise or fall a maximum of 2 percent against the dollar relative to the official fixing rate. The latest slump was prompted by the People’s Bank of China (PBOC)’s decision to set the official dollar/yuan midpoint rate at 6.5314, the weakest fixing since 2011. The fix represented a 0.22 percent decline from the previous session.
The offshore yuan plunge followed a day when China’s main stock index, which has been volatile for months, tumbled nearly 7 per cent before trading was halted under a new emergency measure.
