The yuan has weakened against the US dollar of late. On July 3，the onshore spot rate slipped to 6.71，the lowest level since August 2017. Some observers contend this is the Chinese government's response to the imposition of new tariffs by the US. I disagree with this view. The yuan's weakness has not been the result of policy guidance. Moreover，the currency will not depreciate to a large degree as a result of policy direction in the future.

Some observers see yuan depreciation as an important weapon to be used to boost exports in a trade war with the US. But the argument for using this weapon is weak. From January to May this year，China's foreign trade performance was relatively good. Although trade frictions could hurt exports in future，the impact is likely to be limited even without help from a weaker currency.

In 2017，for example，the yuan's value rose more than 6% against the dollar，but exports still climbed nearly 11% due to the recovery of the global economy. During the period of yuan weakness from 2014 to 2016，exports performed poorly due to a sluggish external environment. If China decides to allow a small depreciation of the yuan，the effect will be limited. If it chooses to permit a bigger depreciation，that could trigger similar moves by other countries，and that would offset some of the benefits to Chinese exporters.

In addition，it is useful to recall the market panic caused by the small devaluation of the currency in 2015. The one-off move was followed by an extended period of yuan depreciation，exacerbating capital outflows. That in turn undermined the Chinese government's efforts to stabilize the exchange rate and promote the internationalization of the currency. A larger depreciation of the yuan would weaken domestic purchasing power and hurt consumer confidence. It would also transmit concerns to the housing，stock and bond markets，increasing the potential for systemic risks.