The Yuan’s devaluation has made investors nervous

GS-II: The Yuan’s devaluation has made investors nervous

CONTEXT

Chinese yuan broke the seven-to-one parity against the dollar for the first time since 2008. China deliberately devalued the Chinese currency after the latest tariff threats issued by US.

Why China did do this?

Economic reasons

China’s weakening manufacturing competitiveness is likely to strengthen with yuan-priced goods and services getting cheaper across supply chains in East Asia, parts of Africa, etc.
It is likely to widen China’s trade surplus with the US in the immediate short run.
It will also help China expand trade margins within its own region, especially with Vietnam, Thailand, Indonesia, etc.

Political Reasons

The US’ own strategic engagement in Asia has weakened under Trump, who questioned the “value of US alliances with Japan and South Korea
Japanese imposed trade restrictions on South Korea. China and Russia staged their first joint aerial patrols in the region, causing South Koreans to react militarily.
China-US friction has offered significant economic and political leverage to smaller emerging nations like Vietnam and Indonesia within their respective regional spaces.

Problems

Risk not only for those trading in the US and Chinese currencies or their stocks but also for capital flows between emerging markets
China, around 2015-16, tried something similar by letting the yuan depreciate; it led to a stock market crash in China, and billions of its dollar reserves disappeared in just a few days.
That devaluation saw led to a massive capital flight from China, further weakening its external position.
The debt denominated in foreign currencies has increased for global companies and developing nations across the world and may be vulnerable to a currency shock if the “currency war” continues.
Most foreign investors switched to the safety of gold or other currencies like the yen.
China’s weakening of its currency to hurt US economic interests for political gains will only make other Asian countries more vulnerable to a political crisis that could quickly escalate to a financial crisis

Source: Live Mint

Join Our Telegram

Dam Safety Bill,2019

Taken for a ride: on India’s gender-blind transport system

India–Azerbaijan

05 Apr, 26
SHARE

A year after tensions arising from Operation Sindoor, India and Azerbaijan have taken steps to restore and normalise bilateral relations. The 6th round of Foreign Office Consultations, held in Baku, marked the first such engagement since 2022, signaling renewed diplomatic momentum. Recent Diplomatic Engagement During the consultations, bo

India–Australia Economic Cooperation and Trade Agreem

04 Apr, 26
SHARE

The India–Australia Economic Cooperation and Trade Agreement has completed four years since its signing. Both countries now aim to build on this progress through strengthened collaboration and ambitious targets, including reaching AUD 100 billion in bilateral trade by 2030. What is the India–Australia Economic Cooperation and Tra

ADR Report on Political Funding

03 Apr, 26
SHARE

A recent report by the Association for Democratic Reforms (ADR) analyses donations of ?20,000 or more declared to the Election Commission of India (ECI) by national political parties for FY 2024–25, highlighting transparency and accountability in political financing. Key Findings Massive Funding Surge Total donations to nationa

Maritime Chokepoints

03 Apr, 26
SHARE

Maritime chokepoints are narrow channels along global shipping routes where maritime traffic is concentrated. These points are geopolitically and economically critical, as they handle a large proportion of global trade, especially energy shipments. Current Relevance Over two-thirds of seaborne energy trade passes through a handful o

US-Israel-Iran War

01 Apr, 26
SHARE

Following the launch of Operation Epic Fury (U.S.) and Operation Roaring Lion (Israel), the geopolitical landscape has shifted fundamentally with the confirmed death of Iran’s Supreme Leader, Ayatollah Ali Khamenei.Iran retaliated through Operation True Promise 4, launching missile attacks against Israel and nearby Gulf states. The escala