In 1992, a 29-year-old Scott Bessent looked at the Bank of England and saw something no one else did.\u00a0<\/p>\n
The Bank of England couldn\u2019t afford to keep its promises. It had committed to keeping the pound trading within a narrow radius against the German mark, requiring it to spend whatever it took to defend the currency\u2019s value. The trouble was that the British economy was fragile\u2014most mortgages in the UK at the time had variable rates, so raising interest rates\u00a0 would devastate British homeowners. Bessent convinced his boss, George Soros, to bet against the pound. When it crashed a week later, Bessent made $1 billion for the firm<\/a> and made himself and Soros famous.<\/p>\n The lesson Bessent learned on that \u201cBlack Wednesday\u201d is simple: when a central bank is artificially holding its currency at a level the market wouldn\u2019t otherwise support, eventually the market will win. Though the yuan is harder to trade than the pound\u2014China has a number of capital controls\u2014the same logic, more or less, should apply to China today. <\/p>\n Thirty-four years later, Bessent is flying to Beijing, where he will sit across from a central bank, the People\u2019s Bank of China<\/a> (PBOC), that is, by his private firm\u2019s research, artificially holding the yuan at a level the market wouldn\u2019t otherwise support. But Bessent isn\u2019t working for that firm now; he\u2019s the Treasury Secretary of the United States.<\/p>\n The dynamics in 2026 are the opposite of 1992 in the UK: Beijing has spent decades suppressing the yuan to keep its exports cheap, as opposed to propping it up to defend a peg. Throughout the 2010s, the scandal of America looking the other way on this plagued Ben Bernanke\u2019s Fed<\/a> and Bush and Obama\u2019s presidencies, propelling \u00a0Trump to classify China<\/a> as a \u201ccurrency manipulator\u201d on the 2016 campaign trail, and then officially in 2019. That designation became the justification for the Mar-a-Lago Accord, which built the financial structure of Trump\u2019s tariff regime: something Bessent called on\u00a0 Bloomberg<\/a> \u201can answer to currency manipulation.\u201d<\/p>\n The yuan, by the estimate of Brad Setser, a Council on Foreign Relations senior fellow who tracks Chinese capital flows and who previously served at Treasury, is about 20% undervalued. \u201cIf you assume the financial account stays closed as it is now, I think you could easily see the yuan trade up to six or stronger,\u201d Setser told Fortune. \u201cTen to twenty percent higher is relatively straightforward.\u201d<\/p>\n How China quietly depresses the yuan\u00a0<\/p>\n China has been the \u201cworld\u2019s factory\u201d since joining the World Trade Organization in 2001, and since then they\u2019ve bought up dollar-denominated assets to keep the yuan cheap, and their exports competitive.\u00a0 It has done so through its foreign exchange agency, the State Administration of Foreign Exchange (SAFE), which currently holds about $1.8 trillion in dollar reserves.<\/p>\n The trouble is that these purchases are public, and have drawn the ire of Washington. So, since 2015, China has tried a new strategy; buying treasuries through state-owned commercial banks, policy banks or its sovereign wealth fund. Right now, Setser estimates, China has about $1.1 trillion at state commercial banks, close to $1 trillion in policy bank claims abroad, and a majority of the China Investment Corporation\u2019s $450 billion portfolio; around $2.5 trillion off balance sheet in total.\u00a0<\/p>\n \u201cChina, Inc. could hold more dollars off SAFE\u2019s balance sheet than on SAFE\u2019s balance sheet,\u201d Setser wrote<\/a> for the Council of Foreign Relations. \u201cNice little trick.\u201d<\/p>\n It seemed to partially work to stave off Washington. In June 2025, six months into his tenure, Bessent\u2019s Treasury Department declined to designate <\/a>China a currency manipulator, citing only the country\u2019s \u201clack of transparency.\u201d<\/p>\n The case for designation is, by most technical measures, stronger now than it was in 2019, when Trump\u2019s first Treasury actually pulled the trigger. \u201cI don\u2019t think China met the criteria in 2019,\u201d Setser said. \u201cI think that was a very political designation.\u201d At the time, he explained,\u00a0 there was not a buildup of foreign exchange and China\u2019s global trade surplus was actually much smaller. Now, he said, China actually does meet the criteria, if you consider that state regional banks are essentially doing the FSOB\u2019s bidding off-balance sheet. So why the silence?<\/p>\n Bessent\u2019s own answer came last September, in Madrid. Asked whether he had raised yuan devaluation with Chinese Vice Premier He Lifeng, the Treasury Secretary told reporters: \u201cWell, they haven\u2019t done it to the U.S. The RMB is actually stronger this year versus the dollar. Now it\u2019s at an all-time low versus the euro, which is a problem for the Europeans.\u201d Asked whether the decline was manipulation, he said only that the yuan is \u201ca closed currency.\u201d<\/p>\n Other analysts see game theory. \u201cXi is coming into the summit feeling confident he has solved Trump,\u201d Jeremy Chan, a senior analyst at Eurasia Group and former U.S. diplomat, told Bloomberg<\/a>. Beijing controls 90% of the world\u2019s processed rare earths\u2014the inputs vital for defense systems and AI chips. The U.S. ran tariffs up to 145% earlier in the year and walked them back to 30% when China retaliated by tightening export controls on those minerals; a moment that exposed a severe lack of preparedness to answer China\u2019s points of leverage.<\/p>\n Jon Hilsenrath, who runs the economic advisory firm Serpa Pinto and covered the Federal Reserve for 26 years at The Wall Street Journal, has puzzled over the same issue, and reads the silence as a form of triage. \u201cThey\u2019ve got so many other bigger issues on their mind that it just hasn\u2019t risen to the level of something they want to make a fuss about,\u201d he told Fortune.<\/p>\n Plus, he added, the Chinese are actually letting the yuan appreciate a little bit. The yuan has climbed about 7% against the dollar over the past year, moving from 7.3 in January 2025 to around 6.80 today. \u201cSo they\u2019re probably happy to see that,\u201d Hilsenrath said.\u00a0<\/p>\n But really, the broader dynamic of the relationship isn\u2019t pulling one way or the other; just stagnation. Hilsenrath likes to call it tangping, borrowing the post-Covid Chinese internet term for \u201clying flat.\u201d<\/p>\n \u201cOur relationship with China is lying flat. It\u2019s not changing, it\u2019s stable,\u201d Hilsenrath said.<\/p>\n That\u2019s the bar for the summit. While Bessent and analysts might once have wanted a structural fix: a yuan that actually reflects China\u2019s surpluses, or an economy rebalanced away from export dependence, none of that is on the table. All Trump wants out of the trip, in Hilsenrath\u2019s read, is \u201cheadline material\u201d\u2014a Chinese commitment to buy $50 billion in soybeans, or a Boeing<\/a> order. Just a handshake. \u201cThat\u2019s more concrete than saying they\u2019re going to let the yuan appreciate another percentage point.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"In 1992, a 29-year-old Scott Bessent looked at the Bank of England and saw something no one else…\n","protected":false},"author":2,"featured_media":584565,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[2307,84,891,4625,141,1294,61018,16065,156,56,54,55,5926],"class_list":["post-584564","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-britain","tag-business","tag-china","tag-currency","tag-donald-trump","tag-economy","tag-international-relations","tag-scott-bessent","tag-tariffs","tag-uk","tag-united-kingdom","tag-unitedkingdom","tag-xi-jinping"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/584564","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=584564"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/584564\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/584565"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=584564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=584564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=584564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}