Devaluing Yuan

In the recent past, the central bank of people of China has devalued the yuan by

approximately 2 % against the US dollar to boost export and take it a step nearer to becoming an

official reserve currency. This move was taken following dollar appreciation over the past one

year and the US was anticipating to hike the interest rate (Inman, 2015). The devaluation of yuan

was achieved by setting the daily reference rate for yuan at 6.2298 to $1 in comparison to 6.1162

yuan, thus leading to a drop of 1.86 %. This move led to a drop in the currency market. People’s

Bank of China select the mid-point using the previous day as a reference rate for the following

day.

The devaluation of yuan was aimed at helping the Chinese businesses to gain competitive

advantage over its regional rivals such as South Korea and Japan. This is because the Chinese

businesses will have degree of predictability. In addition, the devaluation of yuan makes Chinese

products and good cheaper, thus reducing inflationary pressure and maintaining the interest rates

lower (Inman, 2015). As a result, the Chinese products and good will attract international market,

thus increasing the export. This move will also price out the western workers out of their jobs

and at the same time protecting the Chinese economy.

Reference

Inman, P. (2015, August 11). Why Has China Devalued its Currency and What Impact Will it
Have? Beijing Devalue Yuan Against US Dollar, Which Will Make Chinese Goods Cheaper
After 8.3 % Fall in Export In July. Retrieved from The Guardian:
https://www.theguardian.com/business/2015/aug/11/china-devalues-yuan-against-us-dollar-
explaine