China devalues yuan nearly 2% for economic boost
Chinese yuan devaluation rocks United States stocks
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.
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.