Beijing (AsiaNews) – China's central bank has announced the third devaluation of the national currency in three consecutive days. After cutting 2% in the yuan's exchange rate against the dollar on 11 August, on August 12 it further devalued the currency by -1.6%, costing European stock markets 227 billion euro. Today a further depreciation of 1%, brings the yuan renminbi to an to 6.4010 per US dollar. In 72 hours, the Chinese national currency has lost 4.65% of its value.
However, China's Central Bank has sought to reassure global traders: "There is no basis for a further depreciation". The vice governor Yi Gang was speaking at a rare press conference to explain that the goal "is to let the market decide the exchange rate of the Chinese currency: the Bank will refrain from regular interventions in the exchange market." The deputy governor added that the yuan exchange rate will be maintained at a "more or less stable" and "reasonable" level. He added: "Trust the market, respect the market, fear the market, and follow the market".
In a note published in the afternoon, the financial institution tried to calm the markets by pointing out that there is no "basis" for a further economic or financial depreciation, while admitting that there will be a "short period of adaptation" to the new mechanism for setting a daily central parity.
The Japanese Nikkei absorbed the blow and, after an initial uncertainty, ended trading with a rise of 0.99%. The index bounced and recovered 202.78 points and stood at 20,595.55. The South Korean Kospi rose 0.4%, while the Hang Seng in Hong Kong gained 0.3. There was also a slight rebound for Sydney (+ 0.12%), with the Singapore Exchange gaining strength (+1.17).
However, fears of a currency war triggered by these decisions are not unfounded. Vietnam today decided to double the daily trading rate of its dong to 2%. Meanwhile, the Indonesian rupiah and the Malaysian ringgit fell to a 17 year low against the dollar. A government reshuffle in Indonesia today has led to a change in the ministers responsible for the economy and trade. The Indian rupee is near its lowest level in two years, the Australian dollar is at its lowest in six years against the dollar.
According to analysts at Credit Suisse, the weakening of the yuan could lead the Bank of Japan to introduce additional monetary stimulus. For BNP Paribas a write-down between 5 and 10% of the yuan can not be excluded ahead of a central bank intervention.
The global financial community and international politics have reacted differently to Beijig's choices . The International Monetary Fund has "welcomed" the operation, considered a preamble to the free floating of the yuan; the US Treasury says that "it is too early to pass judgment, but we will continue to remain vigilant" of China's economic choices.
South Korean Finance Minister Choi Kyung-hwan said Beijing's move was "positive for [South Korea's] exports as a large portion of shipments to China are intermediate products [and] there are not many export products in direct competition with China"." Delhi has expressed fear that devaluation could affect the import-export trade: "If Beijing continues - said Minister Rajiv Mehrishi - itChina seems to be moving towards flexible exchange rate … Exports from China would be cheaper. It may also impact foreign direct investment".