Advertise On EU-Digest

Anual Advertising Rates

8/20/15

Global Monetary System: The currency war intensifies after China devalues the yuan by Daleen Hassan

One week after the People’s Bank of China devalued the yuan Business Middle East focuses on reactions to the central bank’s latest action which was taken to support the country’s economy.

Reducing the value of the Chinese currency raised many questions and fears in a country considered one of the main engines of the global economy. The devaluation impacted on global stocks, commodities and currencies.

It is a known financial tactic that when the economy stumbles in a country, central banks intervene. For example, what happened with quantitative easing in the US, Japan and the eurozone. It is no different to what China did, so why did the devaluation of the yuan reverberate around the globe in the way it did?

China’s decision to reduce the value of its currency last Tuesday by two percent, led to the yuan falling to its lowest level in 20 years. That surprise was followed by the second on Wednesday to reduce it by 1.06% and on Thursday, there was a third reduction of 1.11%.

A combination of factors pushed Beijing to make this decision mainly, the latest losses in stock markets, especially the Shanghai composite index and recent data which showed exports fell by 8.3 percent in the month of July. The forecast for growth also showed a fall, dropping to less than 7 percent.

China’s currency over the past years was considered one of the most stable but the strong yuan put a lot of pressure on Chinese exports.

In one week following devaluation, the yuan depreciated against the global currencies basket. It fell against the dollar by 2.92% and 3.89% against the euro.

Read more: The currency war intensifies after China devalues the yuan | euronews, Business Middle East

No comments: