August 13, 2015 – On Tuesday, China devalued its tightly controlled currency, the yuan, in the wake of the country’s economic turmoil. The devaluation of 2% is said to be the biggest one-day decline in over ten years.
As a result of the devaluation, Asian currencies and stock markets across the region declined sharply: the onshore yuan suffered its biggest one-day loss in almost twenty years, sending the Thai baht, the Singapore dollar, the Korean won, and the Philippine peso to multiyear lows, according to the Wall Street Journal.
The Chinese government cited it as a free-market reform, a “change in methodology to make it more responsive to market forces,” but many critics think it might be the sign of a longer-term slide in the exchange rate which might lead to tensions with U.S. manufacturers. A weaker yuan will make Chinese exports more competitive, a boon for Chinese exporters who already have very thin profit margins.
According to one source, “China’s decision to devalue the yuan Tuesday—effectively lowering the value of exports and increasing the cost of imports for domestic buyers—is likely to deepen price declines among copper, aluminum and other metals. China consumes nearly half of the world’s annual output of metals.”
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Deng, Chao. “Currencies in Asia Tumble on Devaluation of Chinese Yuan.” The Wall Street Journal. Dow Jones & Copmany, Inc., 11 August 2015. Web. 11 August 2015.
Mukherji, Biman. “With Yuan Devaluation, China Digs a Hole for Commodities.” The Wall Street Journal. Dow Jones & Copmany, Inc., 11 August 2015. Web. 11 August 2015.