Fed Member Says China’s Currency Move Appropriate

Someone should explain to the People’s Bank of China (PBOC) that you can not prompt the International Monetary Fund to add your Fiat Currency to the global currency markets unless you play by the same rules as everyone else. “But for now, the won is also falling quite sharply, taking a desirable course on its own”.

Advertisement

Compounding investors’ concerns about China is the complexity of discerning the health of the Chinese economy.

The chamber observed that if the Indian rupee is not able to keep pace with yuan in losing value, China will further dump goods into the Indian market, further widening the trade deficit between the two countries.

The value of the yuan can rise or fall 2 percent a day from that midpoint, meaning that further devaluation of the yuan is likely despite assurances by Chinese authorities of a “one-off” devaluation.

With rupee being one of the strongest currencies over the last few months, India has seen a decline in its exports, which fell for the seventh straight month in June, contracting 15.82 per cent year-on-year. Today, though the unit came close to the 65 mark, the RBI may have intervened through state-run banks by selling dollars.

Kaplan says many of these potential implications will depend on whether China’s devaluation is a sustained shift in policy, or a one-time move.

Its slide pulled down other Asian currencies on Wednesday, with Indonesia’s rupiah and Malaysia’s ringgit hitting 17-year lows, and the Australian and New Zealand dollars touching six-year lows. The Nasdaq composite declined 67 points, or 1.4 percent, to 4,968. It dropped below the 1,950 mark, as low as 1,948.91 points midday, but later recovered above the level.

“The volume of transactions in yuan on the domestic foreign exchange market is extremely insignificant when compared, for example, with the volume of transactions with the U.S. dollar or the euro“, the Central Bank said in emailed comments. It said the fluctuations would “converge to a reasonably stable zone” following a “short period of adaptation”. Oil was hit, too, as well as key industrial and construction materials including nickel, copper and aluminium. “AAPL”, said analyst Bill Whyman at Evercore ISI.

The devaluation sparked fears of a global “currency war” and accusations that Beijing was unfairly supporting its exporters, but the central bank yesterday sought to reassure financial markets that it was not embarking on a steady depreciation. But analysts said the move was unlikely to spur competitive devaluations and would have only a modest impact.

Shares in all automakers went up Wednesday. Chinese shoppers individually spend significantly more on luxury goods than European consumers, Credit Suisse said. A central parity rate closer to the market rate will provide a more stable environment for macro-economic development. “I think it all relies on the renminbi”, he said.

IT companies that export displays and memory chips are expected to suffer in the China market.

As of Wednesday, the Chinese currency has shed more than 3 percent of its value in the local market and nearly five percent in the worldwide finance market.

“The Korean government should consider taking flexible measures like a rate cut because our export dependence on China is so high”, Lee Bong-geol, a senior researcher at the Institute for worldwide Trade at the Korea global Trade Association.

Advertisement

Chinese policy makers may want the yuan to weaken by 10%, as Reuters reported (http://uk.reuters.com/article/2015/08/12/uk-china-yuan-pressure-insight-idUKKCN0QH0VL20150812).

NYSE trading