Chinese currency falls for 2nd day after devaluation
by Associated Press
BEIJINGAug 13, 2015 - 12:00 am GMT+3
by Associated Press
Aug 13, 2015 12:00 am
China's yuan fell further on Wednesday, fueling concern about a possible "currency war" if other governments fight back with their own devaluations to compete in export markets. Shock waves from Tuesday's 1.9 percent devaluation against the U.S. dollar, which was the yuan's biggest change in a decade, spread through financial markets, causing stocks and Asian currencies to tumble. Beijing said the yuan's decline was a one-time event and part of changes aimed at making the tightly controlled currency more market-oriented. But analysts said allowing market forces free rein could drive the yuan sharply lower. Those suggestions gained ammunition when the currency slid another 1.6 percent yesterday.
Investors saw Beijing's move as an effort to benefit its exporters but many economists rejected that view because global demand is weak. The yuan's decline was small compared with fluctuations of freely traded currencies. But after a decade of little or no movement, the change rattled financial markets and threatened to fan political tensions with Europe and the United States.
While the International Monetary Fund welcomed Beijing's support for market forces, the change sparked complaints in Washington by lawmakers who accuse Beijing of manipulating its currency to gain a trade advantage. "This move may also trigger a new currency war" if central banks respond by trying to depress their country's own exchange rates, said Nicholas Teo of CMC Markets in a report.
Asian currencies declined as the lower yuan weighed on prices in markets where China is a major trader. Malaysia's ringgit and the Indonesia rupiah plunged to their lowest levels in 17 years. The Singapore dollar, Taiwan dollar and Philippine peso fell to five-year lows. The Turkish lira decreased to about 2.785 against the dollar after the announcement. Emerging market currencies were generally lower.
Neighboring Vietnam announced it was widening the band in which its own currency, the dong, is allowed to fluctuate each day from 1 percent to 2 percent. That would allow the dong to depreciate faster, which prompted suggestions Vietnam might be trying to help its exporters compete with Chinese goods.
Yesterday, the Chinese central bank indicated it had no immediate plans to stop the yuan's decline. It said the fluctuations would "converge to a reasonably stable zone" following a "short period of adaptation."