Illustration: Liu Xiangya/GT

Discussions regarding how China might adjust the Chinese yuan's exchange rate in response to external pressures have once again captured the attention of international public opinion, with some Western media outlets even raising the possibility of a "currency war." 

Some media reports have cited the performance of the yuan's exchange rate against the US dollar these days, and interpreted it as concerns about negative impacts on China's economic outlook. However, this is not the whole story.

It is true that as of Thursday trade, the onshore yuan's exchange rate against the dollar depreciated by about 1.88 percent this month, with the exchange rate on Wednesday trading at 7.25 per dollar, the highest since July.

But the recent depreciation of the yuan is mainly caused by the strengthening of the US Dollar Index, which tracks the value of the dollar against a basket of major currencies. On November 22, the US Dollar Index rallied to 108.09, closing at 107.49, which is the index's highest close since November 2022.

It should be noted that during this round of strengthening of the US Dollar Index, a basket of currencies have depreciated against the dollar, while the yuan has shown a certain degree of resilience relative to currencies such as the euro and the yen. Since the start of October, the US Dollar Index has climbed around 6 percent.

China's stance on its exchange rate policy has consistently emphasized a market-based approach, aimed at maintaining the yuan's stability at a reasonable and equilibrium level. This policy is designed to support the long-term healthy development of the Chinese economy. The fluctuations in the yuan's exchange rate are fundamentally influenced by the demands of the Chinese economy, encompassing factors such as economic growth, trade balance and capital flows.

In light of the current complex and evolving geopolitical and economic landscape, China will not mindlessly follow the monetary policies of other nations, nor will it make exchange rate adjustments without careful consideration. However, it is undeniable that in a globalized economic system, changes in external economic policies - particularly those of major economies like the US - cannot be overlooked. 

Currently, the pressure exerted on China by the US and other Western countries is increasing, which is reflected not only in the trade sector but also in monetary policy and other areas. In this context, China cannot afford to ignore these external influences and needs to implement necessary measures to buffer and mitigate their impacts.

Besides, the international status of the yuan has significantly improved compared to the past. It has now become the fifth-largest payment currency globally and is increasingly being incorporated into the foreign exchange reserves of more countries. This development provides China more flexibility in its exchange rate policy.

It is important to note that China's economy is currently undergoing a critical transformation and upgrading phase, which necessitates a stable exchange rate environment. Consequently, in terms of exchange rate policy, China will keep the exchange rate of the yuan basically stable at an adaptive and balanced level to effectively mitigate external shocks while minimizing the negative impacts of significant exchange rate fluctuations on the economy.

Therefore, management of the yuan's exchange rate will be accompanied by caution and prudence. Moreover, China's large economic scale, combined with its substantial foreign exchange reserves, provides a strong basis for the stability of the yuan's exchange rate. 

Additionally, the country is actively increasing the proportion of local currency settlements with its trading partners, which not only reduces excessive reliance on the US dollar but also facilitates and liberalizes trade. Furthermore, China is exploring and promoting new avenues for monetary cooperation by signing currency swap agreements with other nations and establishing regional financial stability mechanisms.