3 major implications of China devaluing yuan vs US dollar
The news of devaluation of Chinese currency has been met with astonishment. People are amazed as to why the Chinese government, all in a sudden, decided to devalue yuan by as much as 2% against the US Greenback.
There are many implications of the sudden devaluation of the currency by the second biggest economy in the world, that many call to be the real number one economy in the world.
The whole world seems to be debating the issue and wondering as to why the People’s Bank of China has allowed its already devalued currency to devalue further against the US dollar.
There are going to be many implications following the depreciation of the Chinese yuan.
Chinese market will see a spurt in order from European nations and US. There is no denying the fact that the China has been facing tough time as far as export is concerned and the move seems to be an effort to make Chinese exports more attractive. The lower Yuan goes, the more enticing Chinese products become for shoppers across the world. This is because of the fact that Chinese products become substantially cheaper.
There is no denying the fact that the sudden move by the Chinese central bank has left US policymakers worried. They are going to condemn the move as it will further impact balance of trade in Chinaâ€™s favor. The U.S. has long accused China of keeping its currency artificially low by hoarding foreign reserves, instead of allowing it to move freely in foreign exchange markets.
There are chances that the move can start a currency war in the region. Depreciated Chinese currency will impact export of several other markets that compete with China in international export market. There are chances that other nations in the region too may devalue their currency in response, leading to so-called competitive devaluation, also known as a currency war.