China gives us the opportunity to understand the difference between the devaluation and currency depreciation.
What made the Central Bank of China was devaluing its currency from the fixed price they themselves had determined to exchange your currency.
A coin is negotiated according to supply and demand, such as weight, depreciates as we have seen in recent months.
The Chinese devalue in order to try to save its economy from the fall in the that is, they do it to give a competitive boost to exports, which only last July tumbled 8.3 percent.
It is clear that China’s decision is part of their way of doing things unilaterally, they do not think of consequences, but what they believe is best for them. It may be that under the laws of the market its currency should be strengthened, not devalued, but that is not useful for your purposes.
For this Asian giant, reactions within the country are no problem to internal controls and outwardly what you see is a huge economic and even military muscle.
But the yuan is unique in its name. Officially it called the renminbi, which means the currency of the people, certainly a nickname in line with the country’s communist speech. But for the everyday currency is known as yuan. Say you have an official name and a nickname.
The yuan is an instrument of commercial exchange, the impact of the devaluation of 1.9% decreed by the monetary authority of Beijing spends more commercial impact for financial, since being a currency with a commanding driving it is not a reserve currency.
However, for emerging markets that are so dependent on the prices of raw materials, itself has involved a jolt.
But what can incite a new episode of the war of currencies which are gaining currency in their capacity as market currencies such as the South Korean won, Indonesian rupiah or even the Singapore dollar.
Emerging markets have suffered the effects of currency depreciation against the US dollar, some have had the same effect against other currencies like the euro.
Healthy economies have that depreciation found in a competitive advantage for its foreign trade, because while the floor has been generally enables the US market as a major buyer, especially for those with privileged access, as the case of Mexico and now China.
2% devaluation not sound like much, but when we talk about a devaluation of the Chinese renminbi by 2% things change, can force its competitors to affect the weakness of their currencies to keep markets conquered.
You can also make the market order more Chinese and further devaluation pressure is generated.
In short, if something was missing to flavor the broth in financial we are there are the Chinese currency to increase tensions could spark a new episode of the currency war.
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