Shanghai, December 11

China’s central bank today cut the yuan’s value against the greenback to its lowest in more than four years, only a week after the International Monetary Fund (IMF) welcomed the unit into its elite reserve currency basket.

The People’s Bank of China (PBoC) set the daily reference at 6.4358 yuan to $1, the lowest since August 5, 2011, the China Foreign Exchange Trade System showed.

The yuan fixing — ahead of US Fed’s interest rate decision, which is widely expected to see a landmark rise — also saw the normally stable currency down 0.8 per cent in a week, its biggest seven-day drop since August. Then, China devalued it by almost five per cent in a week in what it said was a push to make it more market-oriented.

The IMF announcement last week was a symbolic marker in China’s efforts to become a global economic power, and came despite Beijing keeping tight controls on the yuan, including only allowing it to move up or down two per cent against the US dollar from the mid-rate set daily by the central bank.

Pressure on the yuan since the August move has prompted Beijing to sell dollars to support the currency, with its foreign exchange reserves falling to $3.44 trillion in November, their lowest level in nearly three years.

Analysts said this week’s fall came because China has cut back on such moves.

“We haven’t seen any decisive intervention this week and investors take that as the PBoC allowing a weaker currency,” Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp, told Bloomberg News.

But he said the PBoC may resume buying after the US decision next week ‘as there’ll be a better picture on the US interest rate outlook’.

The PBoC took one more step to relax exchange controls today, allowing Chinese companies registered in three more Free Trade Zones (FTZs) to freely convert up to $10 million annually in each direction.

China has set up the areas as test-beds for financial reforms, and the practice was first allowed in the Shanghai FTZ, in the country’s commercial hub, in October.