via Net Right Daily:
Is China about to devalue the yuan — again?
by Robert Romano | April 13, 2016
In the 2000s, a common complaint against China was its weak peg against the dollar and its accumulation of foreign exchange reserves including dollar-denominated assets, which devalued the yuan against the dollar, cheapening the prices of its exports to the U.S. while increasing the prices of imports to China.
… the Shanghai Composite Index has undergone a major correction of more than 40 percent off its June 2015 highs — that is, it crashed — and certain devaluation measures have been deployed by Beijing. Instead of 6 yuan for 1 dollar, as at the beginning of 2014, it has risen to about 6.46 yuan per 1 dollar now, a more than 7 percent devaluation.
But that’s not enough, Yu Hongding, director of the Chinese Academy of Social Sciences and a former Bank of China rate-setter, told the UK Telegraph’s Ambrose Evans-Pritchard. “They must stop intervening on the exchange market. China needs to devalue by 15 percent,” said Yu, warning that Beijing was risking burning through its foreign exchange reserves, which have dropped from $4 trillion to $3.2 trillion since the correction began.
“Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic,” Yu warned.
To keep its competitive edge, China may desire to engage in rampant devaluation once again to boost its exports. But do policymakers there even have any idea what the proper value of the yuan even is?
In the meantime, to the extent Beijing gets it wrong, with public attitudes in the West shifting against Beijing’s de facto tariffs against its trade competitors, this time its actions really might set off a trade war. How this ends is anyone’s guess. (Read More)
Read the full article at Net Right Daily