A Uk200Group member comments on the devaluation of the Yuan
A member of the UK200Group of independent chartered accountancy and lawyer firms has commented on news that China has continued to devalue its currency.
For the third consecutive day in a row the Chinese government has taken the decision to devalue the Yuan, as it attempts to prop up its declining export market.
It comes after recent data showed a decline in Chinese exports, causing concern that the world’s second largest economy is heading for a period of slowdown in the coming years.
The decision to lower the value of the Yuan could potentially make Chinese products cheaper, allowing Chinese companies to be more competitive in the international market.
Jonathan Russell, partner, UK200Group member firm ReesRussell, said: “The USA, in particular, is concerned about the devaluation of the Chinese Yuan, though all countries may have some concern if it is a concerted effort by the Chinese government to manipulate exchange rates to boost their now slowing economy.
“But the main issue is that currencies, such as the dollar, sterling and euro, are fully floating currencies and their value goes up and down constantly, driven by economic factors. The Yuan, on the other hand, has a fixed exchange rate mechanism, but the Chinese government is now moving that fixed rate in line with market trading in the currency; essentially moving it to be more like a floating currency.
“The issue will be if the Chinese government were to devalue the Yuan more than the market trading would indicate, essentially creating a currency war in a hope to stimulate the Chinese economy. At the moment Western economies might be suggesting that they fear China is moving towards manipulation for their own end, but the reality is that we are just getting a slightly unexpected market adjustment of the Yuan.
“It is often said that if the US economy, being the world’s largest economy, has a cold the whole world sneezes, but now the world’s second largest economy is definitely feeling a bit run down.”