China Has Officially Joined the Currency Wars

The only thing China had to wait for was the official inclusion into the International Monetary Fund’s (IMF) reserve currency basket. Now it can devalue its currency as it pleases—and it may not even have a choice.

“A devaluation could be as much as 20 percent against the U.S. dollar because in real effective exchange rate terms the yuan is about 15 percent overvalued at the moment,” says Diana Choyleva, chief economist at Lombard Street Research.

The Chinese currency has gained 15 percent against other major currencies since the middle of last year, according to an analysis by Westpac Strategy Group. Continue reading

Is China Preparing for Currency War?

China has entered the global monetary-easing fray, along with more than a dozen other economies, after its central bank surprised investors by cutting reserve requirements 50 basis points to spur lending and combat deflation. But Beijing may be raring for an even bigger and more perilous fight — in the currency markets.

At the same time, something else is afoot in Beijing could have even greater global impact. The central bank is cooking up measures to widen the band in which its currency trades. People’s Bank of China officials say it’s about limiting volatility as capital zooms in and out of the economy. Let’s call it what it really is: the first step toward yuan depreciation and currency war. Continue reading