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.