1

Ariel Noyola Rodríguez – The Devaluation of the Yuan Tests China’s Rise as a World Power

After the devaluation of the yuan, the international financial markets started trembling. Washington accused Beijing of taking advantage of the market. As China wants to incorporate the yuan into the Special Drawing Rights, it is inconvenient to prolong the devaluation. Furthermore, if a currency war broke out, China would risk increasing the economic and geopolitical tensions between countries in the Asian-Pacific region. That way, the United States would have more possibilities to disrupt regional co-operation initiatives and thereby undermine China’s rise as a world power.

The three devaluations of the yuan, between 10 and 12 August, have key implications for the world economy and the geopolitical balance in the Asia-Pacific[1]. The “relatively big” trade surplus keeps the effective exchange rate “relatively high” and therefore, it is not “entirely consistent with the expectations of the market”, specifies the People’s Bank of China in a statement. The investors’ panic will not last long. The exchange rate ends up at 6,3306 yuan per dollar and the devaluation will not increase more than 5%.

Read More