China de­val­ues yuan nearly 2% for eco­nomic boost

Chi­nese yuan de­val­u­a­tion rocks United States stocks

The China Post - - FRONT PAGE - BY BILL SAVADOVE

Main­land China’s cen­tral bank on Tues­day de­val­ued its yuan cur­rency by nearly 2 per­cent against the U.S. dol­lar, as author­i­ties seek to push mar­ket re­forms and bol­ster the world’s sec­ond-largest econ­omy.

A cheaper yuan will make Chi­nese ex­ports cheaper po­ten­tially boost­ing over­seas sales, among the main driv­ers of growth dur­ing the na­tion’s re­mark­able rise over the past three decades, but which have re­cently shown signs of weak­en­ing.

The sur­prise move marked the big­gest drop since China re­formed its cur­rency sys­tem in 2005 by un­peg­ging the yuan — also known as the ren­minbi ( RMB) — from the green­back. But an­a­lysts said the de­val­u­a­tion could prompt an an­gry re­ac­tion from the U.S., which has con­sis­tently ar­gued that the yuan is un­der­val­ued, and put down­ward pres­sure on other Asian cur­ren­cies.

The Peo­ple’s Bank of China ( PBOC) set its daily “ref­er­ence rate” for the yuan at 6.2298 to US$ 1, com­pared with 6.1162 yuan on Mon­day, ef­fec­tively 1.86 per­cent lower.

China al­lows the yuan to vary by up to two per­cent from the cen­tral rate each day. Un­til now Chi­nese of­fi­cials said they based the fix­ing on a poll of mar­ket-mak­ers, but the PBOC said Tues­day they will now also take into ac­count the pre­vi­ous day’s close and other fac­tors.

But China is also seek­ing to re­form its yuan pol­icy in an ef­fort to have it in­cluded in the In­ter­na­tional Mon­e­tary Fund’s bas­ket of “spe­cial draw­ing rights” (SDR) re­serve cur­ren­cies. Its con­trols have been a stum­bling block in gain­ing ad­mit­tance to the se­lect group, now com­prised of the Amer­i­can dol­lar, Europe’s euro, Bri­tish pound ster­ling and the Ja­panese yen.

The Washington-based IMF said

U.S. stocks sank in early trade Tues­day af­ter China’s sur­prise de­val­u­a­tion of the yuan, seen as a bid to prop up Chi­nese ex­ports that would fur­ther strengthen the Amer­i­can dol­lar.

Af­ter 45 min­utes of trade, the Dow Jones In­dus­trial Av­er­age was down 158.55 points (0.90 per­cent) at 17,456.62.

The broad-based S&P 500 this month that “sig­nif­i­cant work” still needed to be done for the yuan to be con­sid­ered be­fore its next re­view in Novem­ber. “A rea­son­able ad­just­ment of the RMB’s value is good for China’s ex­ports and also good for the RMB to be ad­mit­ted to the SDR,” Liu Dong­min, di­rec­tor of in­ter­na­tional fi­nance re­search of­fice at the Chi­nese Academy of So­cial Sciences, told AFP.

“But most im­por­tantly, this marks key progress for RMB ex­change rate re­form since 2005 and a ma­jor step for RMB mar­ke­tiza- dropped 14.54 (0.69 per­cent) to 2,089.64, while the techrich Nas­daq Com­pos­ite In­dex fell 27.36 ( 0.54 per­cent) to 5,074.44.

“Mar­ket par­tic­i­pants see an al­ter­nate agenda given the tim­ing of things,” said Pa­trick O’Hare of Brief­ing. com, not­ing weak Chi­nese trade data re­leased last week­end that in­cluded a sharp fall in ex­ports. tion,” he said.

Even so, the U.S. has long ar­gued the yuan has been kept “sig­nif­i­cantly un­der­val­ued” to help Chi­nese ex­porters, and Shang­hai Fi­nance Univer­sity as­so­ciate pro­fes­sor Qin Huan­mei said Washington was likely to ob­ject to the de­pre­ci­a­tion.

The PBOC de­scribed the sharply lower rate as a one-off move, though it did not use the term de­val­u­a­tion, say­ing the weak­en­ing in the cur­rency re­flected the new method of cal­cu­lat­ing the daily price.

AP

A shadow of a man is re­flected in glass as he reads a news­pa­per re­port­ing that the Peo­ple’s Bank of China, main­land China’s cen­tral bank, an­nounced the 2015 edi­tion of 100 yuan notes will be is­sued start­ing from Nov. 12, at a stand in Bei­jing, Tues­day, Aug. 11.

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