Donald Trump likes to slam China for unfairly devaluing its currency, but there's a problem with his attacks: They're the precise opposite of what China is doing.
The president-elect took to Twitter as recently as Sunday and went after China as a currency manipulator that reduces the value of the yuan so that it can get the upper hand with its exports.
Trump's accusations would have been true a decade ago, when China always pegged the yuan low against the dollar in an effort to make its exports — which were priced in yuan — cheap relative to U.S.-made products priced in dollars. Those currency machinations did, in fact, give China a trade advantage.
But today, China is spending its foreign currency reserves like crazy, buying up the yuan on foreign exchange markets in a desperate attempt to keep its currency from plunging. Markets are sending the yuan lower by themselves — too low, for Beijing's taste.
A weak yuan prompts Chinese citizens to try to move their wealth into other currencies at a time when China and its leader Xi Jinping are deeply concerned about capital fleeing the country. A weak yuan also risks sparking a currency war with China's regional neighbors and trading partners, who could respond by diminishing their own currencies.
The Chinese government said Wednesday that its foreign currency reserves fell by $69.06 billion last month to $3.052 trillion, their lowest since March 2011. China, the world's second-largest economy, has struggled mightily to keep its currency from free-falling, especially since last year when the Chinese economy slowed and the yuan started moving lower with it.
"The People's Bank of China has been trying to defend its currency, and their pain can be seen when you look the country's foreign reserve number," Naeem Aslam, chief market analyst at London-based brokerage Think Markets, told CNBC. "The dollar index has been soaring crazily, and the country had no other option (than) to sell its reserve to defend its currency."
Jamie Metzl, senior fellow at the Atlantic Council, said China's reserves also serve as a backstop for the country's real estate market, along with several other functions, but it may be stretched too thin now: "Three trillion [dollars] isn't enough to do all these things simultaneously."
The Chinese yuan has fallen nearly 10 percent against the dollar since August 2015, when a meltdown in Chinese financial markets delivered a body blow to Chinese — and global — financial markets. The U.S. dollar index, which measures the greenback's performance against six other currencies, has climbed around 3 percent in the same time period. That said, a large part of the dollar's gains have come since Trump's victory against Hillary Clinton in the presidential election.
CNY/USD since 2008
"The notion of labeling China a currency manipulator in this day and age is just silly," said Edward Alden, senior fellow at the Council on Foreign Relations. "If Trump had said that China was a currency manipulator in 2006, I would have said, 'hoorah,' but in 2016, it's a laughable mistake. I wonder who is advising Trump on this."
The Trump transition team did not immediately respond to a CNBC request for comment.
In 2010, the Chinese government set a goal for itself: It wanted the yuan added to the International Monetary Fund's reserve currency basket — an elite global designation that at that time was held by only the dollar, the yen, the euro and the British pound.
The Chinese government allowed the yuan's value to flow more freely, and the currency was added to the IMF's reserve basket earlier this year, marking the first time the organization added a currency to the basket since 1999.