On August 11, Reuters reported on a new phase of the global war of currency after China’s unexpected yuan devaluation. Some experts say it can be the beginning of big changes, maybe even a crisis, in monetary policy—not only in the East but all around the world. Some predict it may have some influence on the U.S. as the Federal Reserve may decide to delay the increase of the rate it has planned.
The term “currency wars” was used originally by the current finance minister of Brazi. The term now functions as a description of how the world economy works: it’s all about the intensification of competition between countries. Making your currency weaker is one way to increase competitiveness.
Nowadays, exchange rate policy remains a business development stimulator that sometimes helps to avoid deflation. Many investors are sure: China has decided to push Yuan lower to increase the competitiveness of their industry.
Should the RMB devaluation continue, some problems may arise both on Chinese financial market and globally, as the crisis in China is extremely unlikely to remain contained within the national borders.
It is possible to point out some actions by several countries that are aimed at preventing further deflation. For example, many decisions by the European Central Bank—like, for example, the quantitative ease in March—have at least been perceived as an attempt to weaken the overvalued euro. With the same goal in mind, Japan printed more yen to avoid making the national currency too strong.
Even after Chinese economic growth stopped and export percentage dropped, trade weight rate of yuan has climbed up to more than 11 percent in the last year. However, the 2 percent devaluation index brought the thoughts that Beijing attempts to push the currencies of the other Asian markets down and start fresh tensions in the trade relations with the United States.
The point of discussion at the markets for a moment is whether the capital growth has slowed and how the world officials will respond to Chinese movements in the situation.