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This entry was posted on August 11, 2015 at 11:35.
The last change is the August 11, 2015 at 15:57.
1) What did the Chinese Central Bank?
The Central Bank of China has strict control of the exchange rate. Every day after the session fixed parity of the yuan, the so-called “midpoint”. In recent years he has gradually widened the fluctuation band of the coin: the last move took place in March 2014, when the band has doubled from 1 to 2 percent. Chinese investors therefore can exchange the yuan daily within this band. When the transmission is approaching the limit of 2%, the central bank intervenes to prevent the backgrounds. Today, however, did more: he devalued the exchange rate by almost 2%, which has not happened since 1994, to take into account, he said, of supply and demand.
2) Why did you do?
Today’s decision is interpreted by some analysts as a move towards liberalization of the exchange. “This new mechanism – commented analysts at Barclays – marks a revolutionary move that enhances the formation of the Chinese exchange rate.” Other economists think otherwise: with the devaluation of today, say, China enters the currency war, the competition between the central banks to increase the competitiveness of their economies using the gear lever. The data released over the weekend suggest that behind the move there are fears for the health of the economy: in July in fact Chinese exports fell year on year by 8.3 percent. The devaluation of the yuan gives a hand to exporting companies in this delicate phase of the economy.
3) What does the move today for the world economy?
The message is clear: China’s economy is in trouble, beyond statistics official, which continue to show a solid growth rate. And Beijing is ready to do everything to put it back on track. Before the authorities are racing for cover to stem the sharp fall of the Shanghai Stock Exchange, but now intervene on the real economy. Although a depreciation of 2% may seem a small thing, actually it reverses the trend towards strengthening of exchange rates and potentially puts the European and American companies in a position of disadvantage compared to Chinese competitors, especially if the move happens again in the future.
4) What does it mean for the markets?
The decision could have a bearish impact on raw materials because it signals the concern of the Chinese authorities for the state of health of the economy . On the currency market all Asian currencies in general and those of the countries that export more to China could suffer a backlash. Other central banks may be tempted to imitate Beijing in a new installment of the “currency war”, a term coined by former Brazilian Finance Minister Guido Mantega to indicate the strategies of central banks aim to influence the exchange rate. Even the Federal Reserve, which has to decide when to raise rates for the first time in nine years, could postpone the close.
5) What can happen in the coming weeks?
On the political course will not like the move to the United States, who has been calling on the contrary a revaluation of the yuan, although they have never gone so far as to declare officially that China manipulates its exchange rate. Chinese President Xi Jinping will be on an official visit to the United States in late September and the theme will surely be raised by Obama. Looking ahead, one wonders whether the decision to close Beijing today the long-awaited liberalization of the exchange, as claimed by local authorities and some analysts, or on the contrary it is a move that dirigiste has the sole objective of helping Chinese exporters .
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