Currency News: Why This it is Not a Currency War
Why This it is Not a Currency War
When People’s Bank of China devaluated the Yuan by more than 3 percent, the common feelings around global markets was that a currency war had just started. But with a little bit of time to think about it, there are several elements that lead to the opposite conclusion, which is not at all a currency war, but in the end a currency peace.
Devaluating the Yuan is part of a long term strategy that will end up by a free floating currency rate in two or three years. Chinese economy is currently stuck, and there have been several signals of relevant crashes such as the stock market plunge and a decreased industrial production. Those signals are not the consequence of a too strong currency, but of a sick market that has to undertake important surgery operations.
The Yuan devaluation is part of that strategy that will combine market regulations and an incremental opening to global markets. The reason why markets have overall reacted in a negative way is due to the human nature and impulsive decisions. The proof is that after some days, the market undertook again the pattern it was following, expect plunging back again because of FED minutes and lowering oil prices.
