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Nick Beams – China devaluation fuels market turmoil

Financial markets around the world were in turmoil Wednesday as investors, speculators, analysts and pundits tried to assess the significance and implications of the devaluation of the Chinese currency and the establishment of a new mechanism to determine its daily rate. After a 2 percent decline on Tuesday, the renminbi (also known as the yuan) fell a further 1.6 percent yesterday.

Markets were down across Asia as some currencies dropped to their lowest levels since the Asian financial crisis of 1997-98. The Malaysian ringgit fell by 2 percent to its lowest level since 1998, while the Indonesian rupiah dropped by 1.4 percent, taking it to a 17-year low. The Singapore and Taiwan dollars were also down, while the Vietnamese currency fell by 1 percent after financial authorities widened the band within which it can trade to 2 percent from a previous limit of 1 percent.

Stock markets across Europe were also down significantly, reflecting fears that the devaluation may signify that the slowdown in the Chinese economy is more severe than previously thought and that a fall in the Chinese currency will add to deflationary pressures in the global economy.

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