China doesn’t fool around. President Xi Jinping’s government reportedly spent more than $140 billion (US) to end this summer’s stock market rout. So when data on the weekend showed the value of the country's exports plunged in July, many observers anticipated a response. On August 11, Beijing delivered — and then some.
The People’s Bank of China (PBOC) stunned traders by slashing the rate at which it sets the value of the yuan, devaluing the currency by almost 2 percent. At the same time, the central bank pledged to strengthen the market's role in setting the yuan's price, in part by adopting a more transparent mechanism for determining the currency's daily peg to the US dollar. Officials insisted the sharp correction in the exchange rate would be a one-time thing. “The reform of [yuan] exchange rate formation mechanism will continue to be pushed forward with a market orientation,” a PBOC spokesman said. “Markets will play a bigger role in exchange rate determination to facilitate the balancing of international payments.”
Beijing will struggle to convince its trading partners of that. Raghuram Rajan, the governor of the Reserve Bank of India, has been telling everyone who will listen that the world’s major economies are locked in a perilous game of currency destruction.
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