Devaluation of Yuan | Inside View

Devaluation of Yuan | An overview

The decision of  “The People’s Bank Of China” (PBOC) to devalue its currency (Yuan) surprised markets and has been observed in the world as a suspicious move. The process started in August 2015 with 2% Devaluation of Yuan and now in 2016, three consecutive devaluations have knocked over 3% of its value.

Devaluation of YuanSince 2005, China’s currency has appreciated 33% against US Dollar. The unexpected move of devaluation of Yuan is believed to be a desperate attempt by China to boost exports in support of its economy that is growing at its lowest rate in a quarter century; after having achieved a continuous 10.41% growth earlier. The move had a great impact over global stock markets NASDAQ, US and European markets because investors had become accustomed to stability and growing strength of the Yuan.

The PBOC claims that the devaluation of Yuan is all part of its reforms to move towards a more market oriented economy and not because of lackadaisical growth observed in Chinese domestic economy. Although global consensus is against this view but the relative size of devaluation of yuan appears to be in line with market fundamentals, thus some experts believe PBOC’s claim but with suspicion.

Devaluation of Yuan | Indian Implications

The implication of devaluation of Indian economy is primary visible since the 2009 economic crisis, the currencies of most of the Nations fell by 10 to 15% without INR has fallen by 4.6%. The recent devaluation of Yuan poses danger of Indian exports becoming costly and losing competitive edge in the market further. The cheap Chinese goods may flood the markets adversely impacting local business, livelihoods of the people and ‘Make in India’ initiative. Thus there is an urgent need to remap the export sector by India and implementing the ‘Make in India’, ‘Skill India’ and other such schemes efficiently to make Indian products stand qualitatively in the competition.

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