China watchers briefly flipped out late Monday.
On the ad-supported site XE.com, a popular free currency data provider, China’s currency—the yuan—dropped from 6.86 to $1 to 7.5 to $1 overnight. Just like that, it was worth 10% less.
After Donald Trump attacked China for manipulating its currency just this weekend, the yuan’s dramatic fall seemed like confirmation that China was up to no good.
Except it wasn’t true.
Unlike most other currencies, the yuan doesn’t trade overnight, even after Chinese officials extended its trading time this year by five hours (now 9:30 a.m. to 11:30 p.m.). For that reason, it couldn’t have fallen when watchers in the U.S. were freaking out. In addition, even when the yuan does plummet, it can only fall by 2% a day around a set midpoint. That’s because of the tight controls China’s central bank wields over its trading range. (This, by the way, is what China considers currency reform: a price band in which traders must submit bids. If the yuan were fully tradable, it’s possible that the currency would fall all the way to 7.5 to $1.)
An error from London data provided ICAP looks to be the immediate cause of the overnight confusion.
Professional traders with Bloomberg terminals saw the yuan spot prices from a dozen banks all hovering around the actual price of 6.86/$1. Then there was ICAP’s ask price at 7.48 to $1. They must have thought, ICAP screwed it up.
But casual observers without access to a Bloomberg terminal, which rents for $2,000-per month, only saw one figure on XE.com and Google Finance. It’s not clear why the two sites used the erroneous yuan exchange rate, but they did.
Meanwhile, in China there was calm. The equivalent popular Chinese finance site Sina runs didn’t use the erroneous exchange.
China’s currency is unstable, and its government is spending large sums of its hoarded dollars and other foreign currencies to support it. Analysts from big banks like Bank of America, Goldman Sachs, and UBS said earlier this year the yuan was destined to fall to at least 7 to $1 sometime next year.
But the yuan’s not falling 10% in a day. And because of government controls, probably not for a while.
Oh, and the currency rose slightly on Tuesday.