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China devalues yuan currency to three-year low | China devalues yuan currency to three-year low |
(35 minutes later) | |
China's central bank has devalued the national currency, the yuan, to its lowest rate against the US dollar in almost three years. | China's central bank has devalued the national currency, the yuan, to its lowest rate against the US dollar in almost three years. |
The lender said the move was a "one-off depreciation" of 1.9% in a move to make the exchange rate more market-oriented. | The lender said the move was a "one-off depreciation" of 1.9% in a move to make the exchange rate more market-oriented. |
It comes in the wake of a string of weak economic data from the world's second largest economy. | It comes in the wake of a string of weak economic data from the world's second largest economy. |
At the weekend, China reported a sharp fall in exports and a slide in producer prices to a near six-year low in July. | At the weekend, China reported a sharp fall in exports and a slide in producer prices to a near six-year low in July. |
Exports fell by 8.3% in July, far worse than expected and the producer price index was down 5.4% from a year earlier. | Exports fell by 8.3% in July, far worse than expected and the producer price index was down 5.4% from a year earlier. |
The midpoint for the yuan is now set at 6.2298 to $1, up from 6.1162 yuan on Monday. | The midpoint for the yuan is now set at 6.2298 to $1, up from 6.1162 yuan on Monday. |
The People's Bank of China (POBC) manages the rate through the official midpoint, from which trade can rise or fall 2% on any given day. | The People's Bank of China (POBC) manages the rate through the official midpoint, from which trade can rise or fall 2% on any given day. |
Market-based rate | Market-based rate |
Until now, it had been determined solely by the central bank itself. | Until now, it had been determined solely by the central bank itself. |
Making the rate more market-based will mean the midpoint will now be based on overnight global market developments and how the currency finished the previous trading day. | Making the rate more market-based will mean the midpoint will now be based on overnight global market developments and how the currency finished the previous trading day. |
The POBC's move comes amid speculation that China is preparing to widen the trading band for the currency from the current two percent range. | The POBC's move comes amid speculation that China is preparing to widen the trading band for the currency from the current two percent range. |
China has long kept tight control of the yuan value on concerns over financial volatility and losing its policy control. | China has long kept tight control of the yuan value on concerns over financial volatility and losing its policy control. |
Yet it is also under pressure to reform its currency policy as it pushes to become one of the International Monetary Fund's "special drawing rights" (SDR) reserve currencies. | Yet it is also under pressure to reform its currency policy as it pushes to become one of the International Monetary Fund's "special drawing rights" (SDR) reserve currencies. |
These are currencies which IMF members can use to make payments between themselves or to the Fund. | These are currencies which IMF members can use to make payments between themselves or to the Fund. |
'A new currency war?' | 'A new currency war?' |
Analysts ask, though, whether this really is a one-time move from China. | Analysts ask, though, whether this really is a one-time move from China. |
"The question on everyone's mind is whether this is the awakening of the dragon - ushering in a new global currency war?" Angus Nicholson, market analyst with trading firm IG wrote in a note. | "The question on everyone's mind is whether this is the awakening of the dragon - ushering in a new global currency war?" Angus Nicholson, market analyst with trading firm IG wrote in a note. |
"If this move ushers in a new era where the CNY [Chinese yuan] fixing is increasingly reflective of the spot market, it could be positive for its prospects being included in the IMF's special drawing rights basket of currencies this year." | "If this move ushers in a new era where the CNY [Chinese yuan] fixing is increasingly reflective of the spot market, it could be positive for its prospects being included in the IMF's special drawing rights basket of currencies this year." |
Asian equities outside of China slipped on the news as investors weighed the implications of the surprise move. | Asian equities outside of China slipped on the news as investors weighed the implications of the surprise move. |
Analysis: Robert Peston, BBC economics editor | |
The decision of the People's Bank of China to devalue the yuan by 1.9% will have global ramifications, in the short, medium and long-ish term. | |
Immediately it will increase the competitiveness of China's exports at a time when the country's economy is growing at its slowest rate for six years - and when many economists fear that the slowdown will become much more painful and acute. | |
And for all the spur to growth it may give, 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. | |
Read Robert's blog in full |