Tuesday morning China announced an immediate 1.9% devaluation of the Yuan, surpising investors and economists around the world. Bankers around the world have long criticized China for manipulating its currency value in order to help drive exports; this sudden devaluation only strengthens those concerns.
The Chinese economy has been facing slowed growth over the last few months, which has been exaserbated by signs that the Chinese stock bubble is finally bursting, with huge losses across the board.
The reason that the devaulation is a bid deal is because China historically has set the exchange rates between the Yuan and other major currencies, dictating how much their currency is “worth”. If a single US dollar can buy 2% more Chinese Yuan today than it could yesterday, it means that Chinese exports just got 2% “Cheaper” to everyone else in the world, and at the same time imports become more expenses.
Analysts believe the Chinese central bankers are using this to their advantage; by making exports cheaper they hope to continue to drive industrial output destined for other countries, while making imports more expensive would help increase domestic domand for Chinese-made goods by making imported substitutes less attractive.
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