BEIJING (AFP) – The Central Bank of China devalued the yuan Tuesday, which fell nearly 2% against the dollar, a decision with which the authorities hope to revive the The world’s second largest economy.
This surprise devaluation aims to boost exports and is the largest fluctuation of the exchange rate since 2005, when the authorities created the current system of currency trading, also known as renminbi (“people’s currency” ).
The Central Bank placed the daily reference rate at 6.2298 yuan per dollar, compared to 6.1162 level marked the day before, which represents the strongest since 2005, falling 1.86% and the end of approach of the yuan to the greenback.
As a result, the dollar was trading on Tuesday night at 6.3195 yuan, compared with 6.2096 the day before.
This change comes amid speculation about the possibility that China is preparing a widening of the currency band within which the currency operating permit 2% above or below the type reference.
Beijing keeps tight control over its currency fluctuation to prevent “hot money” that is, very volatile inflows abruptly leaving investors of the market may represent financial risks involving loss of control its economy.
This has made the yuan is much more stable than other currencies of major emerging countries, so an extension of the band in which the currency can operate at more than 2% would be a big change magnitude.
Prop exports
Behind this advertisement is also the will of the currency to be included in the basket of currencies the IMF, which make up the Special Drawing Rights of the Washington-based institution.
“A reasonable adjustment in the value of the yuan is good for Chinese exports and is also good for the yuan to be admitted into the basket of the IMF,” he told AFP Liu Dongmin, director of admissions Finance Chinese Academy of Social Sciences.
“This is a major step for the yuan to be liberalized,” he added.
The US has long argued that the yuan was trading at below market rates to help Chinese exports.
“The falling value of the yuan against the dollar will pressure the United States, which wants the yuan to rise,” he said associate professor at Shanghai University of Finance Qin Huanmei.
Meanwhile, the Chinese Central Bank avoided expressly pronounce the word “devaluation”, explaining that these changes are simply “a new way” to calculate the floating band of the currency.
The Chinese economy grew 7.4% in 2014, its worst performance in almost a quarter century, and this year the slowdown has been even more marked, with growth of 7% in the first half, although these figures are in line with government objectives.
Support for exporters
On the side of trade, Chinese exports fell 8.3% in July from the same month in 2014, to 195.100 billion.
As Beijing recognizes the increase of the yuan in recent months against the euro and the yen has severely penalized the intercamibos the Asian giant, so the depreciation of the renminbi will be welcomed by Chinese exporters.
According to Tom Orlik, an economist at Bloomberg Cabinet Intelligence, a 1% depreciation of the real exchange rate of the renminbi could increase 1% the country’s exports.
This has reinforced fears of devaluation by other countries, especially other Asian economies, concerned about protecting the competitiveness of their own currencies and exporters.
But for Beijing, is a double-edged sword: a lasting devaluation of the yuan could accelerate capital flows out of China, if investors fear the collapse of the value of its assets.
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