The Renminbi, or the yuan, on Wednesday weakened to its lowest level against the US dollar since March 2011. The central parity rate of the yuan dropped 225 basis points to 6.5693 against the US dollar, according to the China Foreign Exchange Trading System.
In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day, according to China's (Xinhua) News Agency. The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
The sharp decline suggests that market sentiment remains cautious due to China's prolonged economic slowdown and speculation on a possible rate hike by the US Federal Reserve, according to market analysts.
To reassure global investors, Chinese officials continue to hold that the country has no intention of pushing the value of the yuan down to gain a competitive advantage.
The central government has promised to gradually establish an exchange rate mechanism based on market supply and demand with a two-way floating and flexibility feature.
In addition, China's economic fundamentals support the long-term stability of the currency. Its GDP expansion maintained steam in the first quarter of 2016 with signs of improving growth quality.