The Chinese yuan's slide is concerning but not systemic

Thomson Reuters

• The yuan has plunged 5% versus the dollar over the past three weeks.
• This has drawn comparisons to 2015 when China let its currency fall sharply, roiling global markets.
• But markets seem more comfortable with yuan depreciation this time around.

Amid fears of escalating trade tensions, the yuan’s sharp depreciation against the dollar last month has spooked some investors who see similarities with China’s currency devaluation in 2015, an episode that prompted capital outflows and roiled markets worldwide. Yet despite the similarities, differences in the macroeconomic backdrop suggest the global repercussions will be more limited this time.

Similarities

Both episodes shocked markets. Over the past 12 months, the yuan had fallen against the dollar but at a relatively stable pace. Yet in the three-week span following the Federal Reserve’s 13 June interest rate hike and subsequent dovish moves from the People’s Bank of China (PBOC), the yuan plunged as much as 5.0%. The devaluation on 11 August 2015 was even more abrupt: The yuan dropped by 2% in a single day as markets reacted to the unexpected de-pegging of the Chinese currency from the U.S. dollar (see chart).See the rest of the story at Business Insider

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See Also:

• A brief history of US trade wars
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