China’s second interest-rate cut in three months has raised fears that the government is trying to devalue the yuan to give its exports an unfair boost — an understandable suspicion, given Beijing’s history of manipulating its currency. This time, though, lower interest rates and a moderately weaker yuan make sense not just for China but for the rest of the world as well.
The currency has been drifting lower. At the end of February, with the yuan straining against the floor of its trading band, the central bank dropped its daily reference rate to the lowest level since November. (The currency is allowed to trade within two percentage points of that number.)
Last year the yuan fell more than 3 percent against the dollar. Bear in mind, though, that other currencies — notably the yen — have fallen much faster. On an inflation-adjusted trade-weighted basis, the yuan is still up more than 6 percent.
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