China Latest Country to Devalue Currency

The People’s Bank of China is doing all it can to help quell concerns about the rate of growth in China finally slowing. After achieving miraculous growth for years and as Jake Spring and Xiaoyi Shao write in their article, China’s growth slowest since global crisis, annual target at risk, “China grew at its slowest pace since the global financial crisis in the September quarter and risks missing its official target for the first time in 15 years, adding to concerns the world’s second-largest economy is becoming a drag on global growth.” This article was writing back in October of 2014, but the implications from this slow growth are being addressed today. China has been used to such incredible growth year over year that they have prepared for this type of growth in their industrial capacity. With China finally slowing down, they are going to have vast amounts of factories either not working at all, or working at significantly reduced capabilities. This will also draw down on the potential for companies to expand their businesses in China (an already extremely tough task to do!) As Anjani Trivedi wrote in his Wall Street Journal Article, China Nudges Yuan to 7-Month Low, The People’s Bank of China set the morning reference rate-which typically sets the daily direction- weaker, with traders in Asia then pushing the yuan down to 6.2537 to the dollar, the closest it has ever been to the weak side of its 2% daily trading band.” This devaluing of the currency is an attempt to increase the exports that have been decreasing and increase inflation that has been getting perilously close to deflation. This may seem like a good move on the People’s Bank of China’s part, but they must be concerned into getting into a devaluing race in which all countries lose. This is explained very well in Anjani’s article, “Many central bankers have resorted to letting their currencies fall against those of their trading partners. In the short term, weakening a currency helps exporters by making their goods more competitive in foreign markets. But currency depreciation also raises the risk of a tit-for-tat “race for the bottom” as trading partners seek to outdo one another, only to find gains are limited.” This should be a major concern for countries whose sole reason for devaluing their currency is to try and gain a market advantage and increase net exports. These countries better watch out, as it seems a new countries Central Bank is devaluing a new currency every week!

2 thoughts on “China Latest Country to Devalue Currency

  1. Linda Sun

    Oh, I did not know that China devalues it RMB recently. But consider the depreciation currency trend around the whole world recently, it is understandable that China took the action to compete with other countries’ currency. No mention that China also want to spur its inner economics. Special interesting in the topic of “race for the bottom”. How we define the “bottom”? What will happen when one county first reach the bottom? And how should we understand this race? Those are very interesting questions! But anyway, I’d better let my mom transfer some money to me now since the RMB is depreciating and probably will continue to devalue …..

  2. Hongjun Yu

    President Xi Jinping aims to shift China away from industry-driven growth towards the more sustainable consumer-driven growth. And claims that the slowing growth reflects this goal. Do you think this is true or just an excuse quell concerns over China’s economy?

Leave a Reply