China launches second round of currency devaluation

China’s central bank allows Chinese yuan to slump against US dollar for second time in order to fend off currency war

Photo by: Reuters
Photo by: Reuters

After making room for the largest drop in value of its currency for decades, the People's Bank of China (PBOC) once again on Wednesday devalued the yuan. The move is intended to boost weak exports and stimulate growth in the world’s second largest economy. 

China lowered the yuan's midpoint to 6.3306 on Wednesday, which was 1.6 percent lower than on Tuesday when the yuan was devalued by 1.9 percent. 

The yuan hit a four year low, falling to 6.43 to the dollar, and is expected to decline further after 3.5 percent of its value in China in two days and 4.8 percent in international markets.

"Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan," the bank said in a statement, attempting to regain investor confidence after a major sell off in the stock market. 

Tuesday’s move, which triggered the largest one day fall in the yuan, emerged after weak data continued to swamp the Chinese economy. The last time a comparable devaluation was seen was in 1994.

China's Ministry of Commerce said on Wednesday that the depreciation of the yuan will have a positive effect on exports.

Analysts believe the move will also reduce deflationary pressure, a major concern amongst many economists. 

Meanwhile, the International Monetary Fund (IMF) greeted the move with optimism. 

"Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets," wrote an IMF spokesperson in an emailed statement.

China wishes to include the yuan in the IMF’S Special Drawing Rights (SDR) basket in order to expand its use worldwide. 

While US lawmakers believe the devaluation will produce an unjust export market advantage for China, Korea's Finance Minister Choi Kyung-hwan believes the move will benefit Korean exports to China.



TRTWorld and agencies