China Has Officially Joined the Currency Wars

The only thing China had to wait for was the official inclusion into the IMF’s reserve currency basket. Now it can devalue its currency as it pleases—and it may not have a choice.
China Has Officially Joined the Currency Wars
A foreign currency exchange booth in Hong Kong on Aug. 13, 2015. Philippe Lopez/AFP/Getty Images
Valentin Schmid
Updated:

The only thing China had to wait for was the official inclusion into the International Monetary Fund’s (IMF) reserve currency basket. Now it can devalue its currency as it pleases—and it may not even have a choice.

“A devaluation could be as much as 20 percent against the U.S. dollar because in real effective exchange rate terms the yuan is about 15 percent overvalued at the moment,” says Diana Choyleva, chief economist at Lombard Street Research.

The Chinese currency has gained 15 percent against other major currencies since the middle of last year, according to an analysis by Westpac Strategy Group.

On cue, China set the yuan at 6.414 to the U.S. dollar on Wednesday, Dec. 9, its weakest level since August 2011 and down 3.4 percent since the mini-devaluation in August.

(Bloomberg)
Bloomberg
Valentin Schmid
Valentin Schmid
Author
Valentin Schmid is a former business editor for the Epoch Times. His areas of expertise include global macroeconomic trends and financial markets, China, and Bitcoin. Before joining the paper in 2012, he worked as a portfolio manager for BNP Paribas in Amsterdam, London, Paris, and Hong Kong.
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