Living with a changing financial landscape and a weakened yuan
There was an unmistakable air of alarm on Wednesday as the Singapore dollar fell to its weakest level against the greenback in more than five years while shares took their biggest one-day dive since 2011.
The trigger was the move by mainland Chinese regulators to devalue the yuan.
The first came on Tuesday, with mainland China’s central bank saying the devaluation was aimed at loosening its grip, giving the yuan a more marketdetermined exchange rate.
But the markets interpreted the move, together with Wednesday’s second devaluation, as a sign that mainland China needs a cheaper yuan to boost flagging exports and rev up a softening economy.
As a close trading partner of mainland China’s, Singapore has seen investors selling down the local currency and shares.
The yuan itself dropped sharply to a four-year low against the U.S. dollar on Wednesday, but has recovered some ground.
Mainland China’s decision yesterday to devalue the yuan a third time, but only marginally, signaled that the regulators will ensure a controlled depreciation.
Furthermore, the country’s central bank said yesterday that it will step in to control large fluctuations in the currency.
This so-called managed devaluation may also be designed to help mainland China gain entry to the International Monetary Fund’s Special Drawing Rights basket of currencies, which would bestow reserve currency status on the yuan, observers say.