Yuan devaluation no cause for new global currency war

"The world may have qualified reasons to welcome yuan devaluation if Chinese policymakers’ assertions are taken at face value – that shifting the yuan’s price setting towards market forces is the sole motivation. With excess capacity within its economy, stimulus from improvements in the trade balance can help lift Chinese domestic demand without placing upward pressure on inflation. Furthermore, stronger Chinese domestic demand would act as a partial offset to the currency devaluation, particularly for countries exporting to China. The upshot is that China’s trading partners could stabilise growth with relatively modest easings of monetary policy that would not completely erode the currency advantage gained by China. The fact that China’s trading partners would not have to act with aggressive monetary easing to protect economic growth limits the potential for an outbreak of an all-out currency war. However, if the Chinese economy is in deeper trouble than believed, the recent currency devaluations may be the harbinger of more to come and that would be bad for the world." To read more click the (VIEW LINK)


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