China and the war of currency

Paradoxically, at a time when the country made this gesture of “liberalization”, he takes the risk of plunging the planet into a new currency war episode. Due to the net slowdown in China, the market systematically pulling down the yuan in recent months but the People’s Bank of China resisted this gravity. She relented, Tuesday, August 11, deciding to now fix the value of the currency to the level reached by the market yesterday. Consequently, 1.86% decline Tuesday, before another crash on Wednesday by 1.6%. “In the present context, give the market more a say in determining the exchange rate inevitably means allowing a depreciation,” says Julian Evans-Pritchard, following China at Capital Economics from Singapore.
The International Monetary Fund (IMF) it has also seen “a welcome step”, one of his spokesman ruling that China should switch to a floating exchange rate regime real next two to three years. In contrast, other countries including the Asia-Pacific region, received fresh news. The Australian dollar, Malaysian ringgit, South Korean won, Australian dollar suffered sharp falls since the Chinese announcement. In the US, politicians such as Sen. Bob Casey (Pennsylvania) have jumped on the issue, saying it is “time for the Obama administration to focus more intensely on China’s cheating.”

Rejection of the currency war recovery charges

Economists écharpent the nature of Beijing gesture. Is this a major reform, China is opening up its exchange rate regime, devaluation or she intended to artificially boost the country’s competitiveness? The objective of a 6% growth of foreign trade in 2015 seems to recede, while that of a 7% increase in the domestic product nrut (GDP) will be hard to hold. China considers to be within its rights as a victim of the US and Japanese monetary policies of recent years which have depressed their currencies against the yuan.
Rejecting accusations of revival of currency war, Ma Jun, head of research of the Chinese central bank has taken care to specify on Tuesday that the depreciation amounted to only an adjustment between the administrative parity and the evolution of the yuan on the interbank market. “Allowing the currency to weaken significantly against the dollar does not mean the beginning of a downward trend,” Mr. Ma justified from the official news agency, New China.
Despite these communication efforts, other central bankers could not hear it that way. The South Korean rival, whose exports fell 3.3% year on year in July, have every opportunity to argue that China’s devaluation has harmed its own competitiveness. Under pressure, the United States shall refrain from any official comment, particularly on the influence of this announcement on its own monetary policy.

Beijing 798 Art District

Beijing 798 Art District

8.3% drop in Chinese exports
The timing “Chinese” leaves nothing to chance. Long admired for the resilience of its growth and the ability of its leaders to maintain the pace despite the headwinds, China arouses doubt. The country’s industrial production grew by only 6% year on year in July, against 6.8% in June.
And while Beijing has already deployed this year of stimulus through investment in infrastructure, particularly rail, and that the central bank has lowered its key interest rates four times since November 2014. China also had to ensure recent weeks have provided a cushion of 3,000 billion yuan (422 billion euros) to intervene if the Shanghai Stock Exchange came again to loosen, including 900 billion yuan have already been spent. Factories regions whose economies are based on exports are also in demand as China deliveries abroad fell 8.3% in July year on year.
The powerful Communist Party Secretary Xi Jinping explained in July 2014 to government economists that a little slowdown was “not a big deal.” Times have changed. In recent weeks the contrary, he told his visitors that priority should be given to stabilizing. But in China, as elsewhere, the range of tools is not unlimited and devaluation is.

 

source business blog 

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