Falling yuan: Looks like currency war

There were two stories for why China allowed the value of its currency to fall beginning on Tuesday, one of which makes the government look shortsighted and the other farsighted: It is looking to boost its export sector to combat a weakening economy or it is trying to liberalize its financial system as it ascends the global financial stage. After Wednesday's events, the shortsighted, export-boost story is looking like the more powerful explanation of what China is up to. 

The renminbi fell 1.6% against the dollar on Wednesday after a 1.8% drop on Tuesday. That amounts to an exceptionally steep two-day move in the exchange rate between the world's largest economies Stock Market Trading Tips

There were signs the selloff went beyond even what the Chinese officials themselves had hoped for. The People's Bank of China issued a statement that "currently there is no basis for persistent depreciation" of the currency. Some traders report they see evidence the central bank is buying yuan to stem the declines. 

The initial reaction out of the US to the original liberalization of exchange rates on Tuesday went in two directions. One was to shout "currency war", arguing that China was engaging in a desperate measure to try to achieve some temporary economic gain at the expense of its rivals through currency devaluation. In some of the halls of power in Washington, the reaction was more one of cautious optimism. The IMF and US Treasury adopted a wait-and-see view of the move. They have both been pushing China to liberalize its exchange rate policy so that it adapts more to market forces, and they were, it seemed, getting what they wanted. 

The fact that the sharp drop continued for a second day makes more plausible the idea that China is primarily motivated by a desire to advantage its exporters against competitors across Asia and beyond Indian stock market astrology prediction

The more abrupt a move the government allows, the more the devaluation looks of a piece with China's frantic efforts to prop up its stock market earlier this summer — a short-term, desperation solution to a pressing problem. 

The book is not written on China's new currency policies; after all, they're only two days old. But if the selloff continues the way it did on Wednesday, the blowback to China's actions and talk of "currency wars" will only get louder, and the voices of praise for its move toward liberalization softer Himanshu Tiwari Astrologer