As industry tensions between the United States and China have resumed, Morgan Stanley is convinced that the Chinese currency will be used as a tool to attack the United States.
Speaking to CNBC Wednesday, Morgan Stanley chief Asia economist Chetan Ahya said: “I think there’s another trend that’s emerging … China doesn’t want its currency to be that volatile, or be seen to be a currency which is not seen to be stable enough to be a long time venue for being a reserve currency.”
Ahya said: “We believe that China will not use its currency aggressively, even if there were new rounds of tensions in the industry.”
“We believe that they will move forward, in the context of geopolitical developments, seeking to keep it more robust so that it can be noticed as a stored price currency where other people are encouraged to enter Chinese assets.”
Tensions have risen again between two of the world’s largest economies, most recently due to the new draconian security law imposed on Hong Kong last month.
China has said the rule is mandatory for security reasons, but critics of the law say it violates Hong Kong’s “One Country, Two Systems” policy, which has been in position since 1997.
China has always threatened to devalue its yuan in its industrial war with the United States.
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In 2018, the country devalued its currency to its lowest point in more than a decade, leading the United States to call China a “currency manipulator.” The yuan had fallen below seven opposites to the dollar at the time.
While the United States has said it will give up its name as a currency manipulator before signing China-U.S. Phase 1 industry agreement in January, tensions between the two countries have erupted over who is the coronavirus outbreak and more recently Hong Kong’s autonomy.
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But while tensions between both countries are visibly rising, Morgan Stanley thinks China’s assertion to use the Yuan is an empty threat.
Ahya’s comments echo the statements made through Goldman Sachs last week, which predicted on a note that the yuan could even appreciate against the US dollar at 6.70, following China’s smart economic performance.
Zach Pandl, co-director of global exchange strategy, rates and emerging markets at Goldman Sach, told CNBC last week: “The only thing holding back our enthusiasm for the currency is tensions with the United States ahead of the November election. “.