China has been criticized by some for keeping its currency undervalued to gain a trade advantage for its exports.
China followed up the previous session’s yuan devaluation by announcing another policy reset on Wednesday, lowering the daily midpoint for the currency down 1.6% to 6.3306 against the dollar.
However, “for all the spur to growth it may give”, he continues, “the devaluation will reawaken concerns that Beijing is still a million miles from having re-engineered the Chinese economy to deliver more balanced growth based on stronger domestic consumer demand”.
Secondly, Indian exports which are already under a huge pressure in major markets of the world, would see further erosion in their competitiveness as the Chinese would become much more aggressive in their desperate moves to shore up their economy. Republication or redistribution of content provided by EconoTimes is expressly prohibited without the prior written consent of EconoTimes, except for personal and non-commercial use.
WALL STREET: The Standard & Poor’s 500 fell 20.11 points, or 1 percent, to 2,084.07 on Tuesday.
Echoing Chen, Liang Kuo-yuan (梁國源), president of Yuanta-Polaris Research Institute (元大寶華綜合經濟研究院) said that China needs to improve the transparency of its currency market to narrow the gap with its foreign counterparts by reducing its manipulation of the yuan.
The Dow Jones industrial average was down 246 points, or 1.4 percent, at 17,153, while the Nasdaq composite lost 79 points, or 1.6 percent, to 4,958.
Subramanian said China, on the one hand, has devalued the currency and taken measures aimed at reducing the spread between onshore and offshore rates.
When the PBOC first allowed the yuan to depreciate on Tuesday, it looked nearly promising-a decision that could both boost China’s exports and signal the country’s intent to let its exchange rate be influenced more by the free market.
Inclusion in this basket is unlikely to help China financially, but it will advance the yuan’s claim to be recognised as one of the world’s major currencies. In response, they sold stocks in companies that do significant business in China: YUM!
China itself says its devaluation is not about stimulating a slowing economy, describing it as a one-time move to enhance “the market-orientation and benchmark status” of the renminbi. The euro rose to $1.1150 from $1.1047. It fell $1.23 to close at $49.18 in London.
BONDS, CURRENCIES: U.S. government bonds rose, sending the yield on the 10-year Treasury down to 2.13 percent from 2.14 percent the day before. Emerging market currencies were generally lower.
EUR/USD was up 0.67% to 1.1115, the most since July 27.