Political Economy Research

China’s central bank has devalued the yuan for the third day running, adding to fears of a currency war.


The People’s Bank of China cut the reference rate of the yuan against the dollar by 1 per cent – smaller than the cuts that so shocked financial markets earlier this week.

It is a continuation of what the bank on Tuesday called a “one-time correction” of almost 2pc, part of a move to make the yuan closer to a free-floating currency whose value is determined by the markets.
Devaluation is aimed at boosting struggling Chinese exports, and is the latest in a series of measures by the central bank to attempt to kickstart sluggish growth.

The exchange-rate changes are also aimed at aiding the adoption of the yuan as a reserve currency by the International Monetary Fund.

Thursday’s announcement means that 6.4010 yuan buys one US dollar, a 1.1pc drop in value compared to Wednesday’s 6.3306.

Stockmarkets in London, Paris and Frankfurt were jittery following Wednesday’s second devaluation announcement, all closing down, though the FTSE 100 was up slightly on Thursday.
Asian markets were mixed, though China’s Shanghai index was up %1.76 on the day.
Many economists said the decline in the yuan is too small to help Chinese exports due to weak global demand.