China is Communist-run Nation with Western Tools for Economic Progress
Wall Street and Other Markets React
(one-day gains all kaput)
By habit,
I check the market at least twice a day (open and close) to see how my
TSP funds (big chunk of my retirement funds) is faring under as part
of the S&P where it is invested. Wow – in the red, big time and only one
day after a huge gain. So, I asked myself why, and then I followed up on this
story flashing all across the Internet: “China Devalues their Currency (the
Yuan)…” A second wow …
China's move, which their central
bank described as a “one-off depreciation” is based on a new way of managing
the exchange rate that better reflected market forces, That move triggered the
yuan's biggest fall since 1994, and pushing it to its weakest against our dollar in
almost three years.
In a potentially worrisome sign,
China's offshore yuan, a more liquid instrument traded out of Hong Kong, fell
2.9 percent, exceeding the fall in the onshore yuan. That suggests more
possible losses for the onshore currency, as the Hong Kong-traded yuan tends to
act as a precursor to the onshore.
Related here (Globe and Mall) and here (WSJ): The devaluation followed weekend data that showed China’s
exports tumbled 8.3 per cent in July, hit by weaker demand from Europe, the
United States and Japan, and that producer prices were well into their fourth
year of deflation. The move hurt the Australian and New Zealand dollars and the
Korean Won, fanning talk of a round of currency devaluations from other
major exporters. But some of Asia’s most interventionist central banks appeared
to be holding their nerve on currency policy. Said one Japanese policy maker: “I
don’t think the move would trigger a global currency war.”
Yes, that's Mao's Picture on Chinese Money
Other Reactions: Emerging market currencies, which have already fallen sharply in the past year as our dollar has strengthened, slumped again.
Washington has for years pressed Beijing to
liberalize its control of the yuan to allow it to strengthen given China's high
rate of economic growth and massive exports.
But Chinese economic growth is now slowing and the new
exchange rate mechanism gives markets greater ability to push the yuan lower,
just as the United States prepares to raise interest rates, a step that may add
further to the dollar’s strength.
Investors are now wondering whether China's devaluation will
keep the Federal Reserve from raising rates in September as many anticipate.
China, as I said, is a communist-led country
ranking #2 in world in trade – so is this some kind of new “economic strategy
or model” when other strategies have not been so hot? It’s a good topic for
discussion, isn’t it?
Thanks for stopping by. Come again.
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