Panic of the Day

The media thinks it’s big news from China that the Yuan has fallen in U.S. Dollar terms by 4 percent as of this writing. Those who know the facts realize that this isn’t big news. The Chinese currency today sits 33 percent above where it was 10 years ago versus its trading partners. In other words, the Yuan has appreciated by 33 percent versus the currencies of its major trading partners. It has risen by 26 percent versus the U.S. Dollar during this same period.

All that China is doing by letting their currency fall is saying, “Our currency has gone up so much that we’re having a hard time exporting goods. We can export plenty if our currency goes from 33 percent above the level of 10 years ago to, say, 25 percent above. So we’re going to let our currency give back some of its huge gains.”

 

The Yuan’s Recent Slide is a Blip Compared to Its Long-term Rise

The Yuan’s Recent Slide is a Blip Compared to Its Long-term Rise

Here at GIM we are saying:

Don’t worry — China does not plan to devalue their currency too much. A major devaluation would serve none of China’s long-term goals, which include (among others):
Being part of the IMF back-up currency regime for SDRs along with the U.S. Dollar, Japanese Yen, Euro, and British Pound;

Having more influence in global trade and business decisions; and

Having Chinese stocks included in world stock market indices proportionately to the size of China’s economy. (Currently, Chinese stocks comprise a much smaller part of these indices than the size of the Chinese economy would warrant.)

Categories: China