China
devalues yuan for third straight day, adding to fears of currency war
Central
bank weakens currency further by 1.1% after previous official cuts
that put global financial markets on edge
Staff and agencies
in Shanghai
Thursday 13 August
2015 04.35 BST /
http://www.theguardian.com/world/2015/aug/13/china-devalues-yuan-for-third-straight-day-adding-to-fears-of-currency-war
China cut the
reference rate for its currency for the third straight day on
Thursday, after the surprise devaluation of the yuan this week
unsettled global financial markets.
The central bank put
the yuan’s central parity rate at 6.4010 yuan for US$1, the China
Foreign Exchange Trade System said, a drop of 1.11% from the previous
day’s 6.3306.
It was also lower
than Wednesday’s close and comes after China adopted a more
market-oriented method of calculating the currency rate in a move
widely seen as a devaluation.
The cuts have put
financial markets on edge, sparking worries of a “currency war”
as other countries feel pressure to devalue and raising questions
about the health of the world’s second-largest economy, where
growth is already slowing.
European stock
markets in London, Frankfurt and Paris closed lower on Wednesday on
worries China’s economy is struggling more than previously thought.
But US stocks overcame early weakness and finished mostly higher.
Asian markets were
mixed on Thursday but China’s benchmark Shanghai index was up 0.74%
by mid-morning.
China keeps a tight
grip on the yuan, allowing it to fluctuate up or down just 2% on
either side of the reference rate, which it sets daily.
The People’s Bank
of China (PBoC) on Tuesday announced a “one-time correction” of
nearly 2% in the yuan’s value against the greenback as it changed
the mechanism.
Previously it had
said it based the fixing on a poll of market-makers, but declared it
would now also take into account the previous day’s close, foreign
exchange supply and demand and the rates of major currencies.
China stuns
financial markets by devaluing yuan for second day running
Read more
It has since lowered
the central rate twice more, and the week’s combined drop is the
biggest since China set up its modern foreign exchange system in 1994
when it devalued the yuan by 33% at a stroke.
Analysts viewed the
move as a way for China to both boost exports by making its goods
cheaper abroad and push economic reforms as it seeks to become one of
the reserve currencies in the International Monetary Fund’s SDR
(special drawing rights) group.
But the volatility
in the normally unusually stable unit has raised concerns, and
Bloomberg News reported on Wednesday that the central bank had
intervened in the market to prop it up.
PBoC economist Ma
Jun said on Wednesday that China could stabilise the yuan through
direct market intervention.
“The central bank,
if necessary, is fully capable of stabilising the exchange rate
through direct intervention in the foreign exchange market to avoid
[the] herd mentality resulting in irrational movements of the rate,”
Ma was quoted as saying by the official Xinhua news agency.
He also dismissed
the possibility that China was seeking to wage a currency war, saying
there was no need as exports were expected to pick up in the second
half of the year. “China does not have the need to start a currency
war to gain advantage,” he said.
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