US says China manipulates yuan. What does that mean, how is it done?

Currency manipulation happens when governments try to artificially tweak the exchange rate to gain an “unfair” advantage in trade.

US President Donald Trump with China’s President Xi Jinping at the Great Hall of the People in Beijing, China. (Reuters/File)

On Monday, the US Treasury Department declared that China is a currency manipulator. The move came after the People’s Bank of China (PBOC), the central bank of China, allowed the yuan to suddenly depreciate (or lose value) relative to the dollar by 1.9 per cent — one of the biggest single-day falls. As a result, the yuan breached the 7-to-a-dollar-mark for the first time since 2008. In retaliation, the US announced that it would approach the International Monetary Fund “to eliminate the unfair competitive advantage created by China’s latest actions”. It signalled that the ongoing trade war between the world’s two biggest economies was now turning into a currency war as well.