Yesterday’s devaluation of 1.9 percent in the value of the Yuan was followed today by another cut of one percent by China’s central bank in the national currency’s competitive value. With July’s decline of 8 percent in China’s exports, following in the wake of the collapse in equity values on the Chinese stock markets, Beijing is clearly worried.
A devaluation of three-percent in the value of nation’s currency, particularly when the fall in value is not the result of market forces but of deliberative monetary policy, is a very big deal in global finance. A nation does not willingly sabotage and debase its own currency when its economy is enjoying robust growth. Currency devaluations are specific acts of monetary policy enacted by the sovereign when its economy is in jeopardy. Thus, despite the official statistics emanating from Beijing on GDP growth and other rosy prognostications, the Chinese economy is facing gathering headwinds. With a low rate of domestic consumption as a proportion of its total GDP, Beijing has undertaken a radical monetary devaluation in an act of desperation, hoping to kickstart exports by cheapening its currency.
Now the remaining major economies must also worry, as the People’s Republic of China has declared an all-out currency war, with the major victim–and target–being the American economy. And the repercussions are not only economic; Donald Trump is poised to take full advantage of China’s currency manipulation as he maintains his frontrunner status in the race for the Republican Party’s nomination for President of the United States. Trump has already gotten ahead of his GOP competition by pontificating on the damage to America’s economy by allowing China’s currency devaluation to be spared any meaningful policy response by Washington, ultimately costing American workers their jobs.
It may be that the monetary policy measure executed by the People’s Bank of China will have its greatest impact and consequences on domestic American politics, with long-term results that may be the opposite of what Beijing desires.
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