China warns of currency collapse as US tightens its grip on yuan

China’s central bank has warned of a “currency collapse” as US regulators tighten their grip on the yuan and impose capital controls.

Key points:China has warned that the country’s exports could be “deteriorated” if the US restricts access to the yuan.

The central bank also said it would restrict the flow of foreign currency into the country, raising fears of a financial contagion.

“The Chinese currency could be sharply devalued in the event of the US decision to impose capital restrictions,” it said in a statement on Wednesday.

“We will closely monitor the situation,” it added.

“If the US imposes capital controls, it will be extremely difficult to raise foreign exchange to cover the difference between the value of the dollar and the exchange rate.”

This will impact the international trade, trade turnover and international financial flows.

“China’s currency is currently trading at the world’s weakest level in a decade, below the dollar’s two-year low of 70.4 per cent of global reserves.

It is trading at just above 90 per cent this week, down from a high of 100.3 per cent in early November.

Its trading has been heavily restricted since the US imposed new sanctions on Chinese companies on Tuesday following Beijing’s claims that Washington’s trade war with Beijing was not in line with international law.

The US has said it will impose sanctions on some Chinese companies, which are accused of manipulating foreign exchange markets to help their domestic industries.