China has once again lowered sharply the reference rate of the yuan against the dollar for the second consecutive day, highlighting the de facto devaluation of its currency, which reached its lowest level in four years at 6.43 to the dollar, Wednesday, August 12. The yuan has now lost 3.5% in China over the past two days, and about 4.8% on the world market.
In detail, the Bank of China has lowered to 6.3306 yuan to the dollar, against 6.2298 yuan, the central rate around which the currency is allowed to fluctuate within a daily range of 2%. She had already reduced by almost 2% this reference rate Tuesday – the most brutal depreciation since 2005 and the end of the stowage of the yuan to the dollar
Unlike the United States or area. euro that leave the level of foreign exchange to settle freely, China administratively sets a daily central rate around which the currency can not vary more than 2%, upwards or downwards. In determining the course before each session, the authority said probe the foreign exchange market participants and large follow the evolution of major currencies. The yuan was undocked the dollar in 2005.
To respond to suspicions that want the Bank of China and other large public banks have artificially maintained the yuan against the downward pressure, Beijing has decided that now, the central bank would set the mid-point by using “full account” the supply and demand in the foreign exchange market and the most recent foreign exchange levels.
Read our explanations: Why China devalued the yuan
But what was presented as “one action” that does repeat was not in fact repeated. On Wednesday announced rate is even lower than the level reached in closing by the Chinese currency. In a statement, the institution has tried to reassure financial markets by refuting the idea of a prolonged devaluation.
“Given the international economic situation and domestic Nothing currently justifies a sustained depreciation of the yuan “.
These decisions are aimed, firstly, to stem the slowdown in economic activity in the Asian giant, by raising its foreign trade in difficulty. Beijing also displaying its desire to strengthen its efforts towards a “convertibility” the yen.
But China seeks above all to integrate its currency to the basket of reference currencies IMF, which account for now four currencies (dollar, euro, pound and yen). The IMF, which will decide in November, welcomed a “positive step” after the first devaluation, while stating that these measures will not have “direct involvement” its decision.
The policy of the Central Bank is no stranger to the announcement of a fall of 8.3% of Chinese exports in July. The strengthening of the Chinese currency against the euro, in order to support consumption and help companies invest abroad, actually hindered the Asian giant’s exports to the EU, its main trading partner.
The consequences this has had further devaluation of the yuan:
- The Asian exchanges have opened their session sharply lower, the Stock Exchange Shanghai falling by 1.19%.
- Other Asian currencies were also down, the Indonesian rupiah and the Malaysian ringgit touching their lowest levels in 17 years and the Australian dollar and New Zealand on lowest in 6 years.
- Oil prices reached their lowest level in more than six years.
- Wall Street ended Tuesday’s session down sharply. Eight of the 10 sector indices of the S & amp; P finished in red and primarily that of raw materials, which leaves 1.93%
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