In the context of a faltering economy, devaluing the currency could be a way of fighting the tide of capital flight without having to raise interest rates, which would otherwise be counterproductive.
‘Until yesterday, China had acted to prevent the depreciation of the renminbi, with its foreign exchange reserve slipping from a peak of nearly $4tn, to $3.7tn. With a US interest rate hike just around the corner... the pressure on Chinese policymakers to throw in the towel and abandon the peg would rise still further,’ Fathom said.
Whether China is in a hard or soft landing from its high growth heyday is difficult to know for certain, but either way it does need to stimulate the economy and it is facing pressure to devalue. Just how far the currency falls over the next months will be telling. If the People’s Republic continues to devalue the yuan significantly, it could bode very badly for the global recovery.
In the context of a faltering economy, devaluing the currency could be a way of fighting the tide of capital flight without having to raise interest rates, which would otherwise be counterproductive.‘Until yesterday, China had acted to prevent the depreciation of the renminbi, with its foreign exchange reserve slipping from a peak of nearly $4tn, to $3.7tn. With a US interest rate hike just around the corner... the pressure on Chinese policymakers to throw in the towel and abandon the peg would rise still further,’ Fathom said.Whether China is in a hard or soft landing from its high growth heyday is difficult to know for certain, but either way it does need to stimulate the economy and it is facing pressure to devalue. Just how far the currency falls over the next months will be telling. If the People’s Republic continues to devalue the yuan significantly, it could bode very badly for the global recovery.
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