Forex4you - Analytics

Forex4you

528.00 7.00/10
60% of positive reviews
Real

Why has China devalued the yuan?

The yuan’s decline against the US dollar spurred debate in the investment community regarding the reasons that prompted Chinese authorities to take this step. The question is not idle – if we understand the motives, we can anticipate further development of the situation. In this case, we’ll be able to predict how far this controlled weakening of the Chinese national currency can come…

As it’s known, the yuan is tightly controlled by local monetary authorities. PBOC sets the so-called midpoint for the value of the yuan against the US dollar, from which the couple can not deviate by more than 2% in either direction. Thus, the dollar’s growth on August 11-12 was caused not by market forces, but by the decision of the central bank of China. But what prompted the regulator take such a step?

The main assumptions are the following:

Version №1: the yuan has been devalued to boost exports.

This version is the most common among economists. According to them, the July drop in Chinese exports by 8.3% y/y sparked concerns in the PBOC about the pace of economic growth. As a result, it was decided to devalue its national currency to support local exporters by increasing the competitiveness of their products in the global market.

Version №2: the yuan was devalued for protection ahead of the rate hike in the United States.

This version was proposed by Goldman Sachs economists. In their opinion, the People’s Bank of China expects an early rate hike by the Fed and is preparing for a subsequent strengthening of the US dollar against major competitors. Since the yuan is quite rigidly pegged to the dollar, the rise of the latter against other major currencies would lead to yuan’s inevitable growth.” To avoid this unwanted growth the Bank to weaken the exchange rate beforehand.

Version №3 (official): the devaluation of the yuan – the next step towards the exchange-rate fix.

This is the explanation offered by Beijing. They say that now the market will play a greater role in determining the exchange rate of the Chinese currency, and the dollar/yuan pair meets these new realities.

Perhaps the debate over which of these versions is true, won’t probably calm soon. And I think, what if by devaluing the yuan China tried to kill three birds with one stone? Maybe all the three versions are correct?..

 

Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

The yuan’s decline against the US dollar spurred debate in the investment community regarding the reasons that prompted Chinese authorities to take this step. The question is not idle – if we understand the motives, we can anticipate further development of the situation. In this case, we’ll be able to predict how far this controlled weakening of the Chinese national currency can come…

As it’s known, the yuan is tightly controlled by local monetary authorities. PBOC sets the so-called midpoint for the value of the yuan against the US dollar, from which the couple can not deviate by more than 2% in either direction. Thus, the dollar’s growth on August 11-12 was caused not by market forces, but by the decision of the central bank of China. But what prompted the regulator take such a step?

The main assumptions are the following:

Version №1: the yuan has been devalued to boost exports.

This version is the most common among economists. According to them, the July drop in Chinese exports by 8.3% y/y sparked concerns in the PBOC about the pace of economic growth. As a result, it was decided to devalue its national currency to support local exporters by increasing the competitiveness of their products in the global market.

Version №2: the yuan was devalued for protection ahead of the rate hike in the United States.

This version was proposed by Goldman Sachs economists. In their opinion, the People’s Bank of China expects an early rate hike by the Fed and is preparing for a subsequent strengthening of the US dollar against major competitors. Since the yuan is quite rigidly pegged to the dollar, the rise of the latter against other major currencies would lead to yuan’s inevitable growth.” To avoid this unwanted growth the Bank to weaken the exchange rate beforehand.

Version №3 (official): the devaluation of the yuan – the next step towards the exchange-rate fix.

This is the explanation offered by Beijing. They say that now the market will play a greater role in determining the exchange rate of the Chinese currency, and the dollar/yuan pair meets these new realities.

Perhaps the debate over which of these versions is true, won’t probably calm soon. And I think, what if by devaluing the yuan China tried to kill three birds with one stone? Maybe all the three versions are correct?..

 

Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!



To leave a comment you must or Join us


By visiting our website and services, you agree to the conditions of use of cookies. Learn more
I agree