In play to boost its exports, China devalues by almost 2%

August 11th, 2015 at 9:32 am

I had a feeling this was coming (from last April):

For reasons having to do with the current policy push [in China] toward more internal investment and consumption, their currency does not appear to be misaligned (artificially low) relative to the dollar, but if they should decide that their slowing growth rates are unacceptably low, they will devalue and that will hurt us.

Another interesting aspect of this are the linkages between the U.S. dollar, the Chinese yuan, and various offer currencies. The NYT points out that both the Australian dollar and the South Korean won fell by 1.1% and 1.4%, respectively. That’s part of what happens when you’re the primary global reserve currency.

In arguments about currency during the TPP debate, claims were made that a) China’s currency was not misaligned (true) and thus b) their management of their currency was a thing of the past (not true). This reminds us that whatever happens with the trade agreement, we need a strategy to deal with countries that manage their currencies. This event is a reminder that there’s no reason to ignore these concerns.


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3 comments in reply to "In play to boost its exports, China devalues by almost 2%"

  1. Kevin Rica says:

    This is different from two years ago. China is still running a large and growing trade surplus, but the PBoC is not financing it by reserve purchases. This time, China’s tightly controlled capital account has reversed and gone into deficit. It is the capital account that is now financing the current account surplus. Same end, different means.

  2. Pat McClung says:

    Truly this is a tempest in a teapot. Did the Eurozone central bank devalue the Euro 23% against the Dollar in order to “boost its exports”? 23-24% is ten times greater than 2-3%, someone may have noticed.

    Why not “China slightly eases its dramatic run-up against other world currencies”?