Yuan devaluation

Thu, Nov 5, 2015

Education

People’s Republic of China is the second largest economy of the world. Its official currency ‘Renminbi’ is the eighth most
traded currency in the world. The famous ‘Yuan’ is the basic unit of Renminbi, but usually referred to as Chinese currency in international contexts.

People’s Republic of China is the second largest economy of the world. Its official currency ‘Renminbi’ is the eighth most traded currency in the world. The famous ‘Yuan’ is the basic unit of Renminbi, but usually referred to as Chinese currency in international contexts.

Earlier Yuan was not a free floating currency. The PBOC had many checks on it and ensured that the Yuan traded within 2% range on either side of the reference line. This reference line is the official rate at which PBOC wants Yuan to be traded against US dollars which is set at 9:15
am every day in Shanghai. This balance was maintained by selling or buying US dollars as the need may be. This is in line with bringing Chinese economy in a more market oriented direction so to get a widespread acceptability for Yuan at global level.

However, the world has a different perception. Chinese Industrial data has shown exports to be declined by 8.3% in July 2015 as compared with previous year. China has been alleged to manipulate Yuan so that it could push its exports and eventually imports will hit which could undermine its trading partners. This implies that Chinese economy is on a downturn. However, China has been continuously putting aside these allegations.

India’s trade with China has reached $72.3 billion in 2014-15, with trade deficit of around $48.5 billion. In the short run, this trade deficit might increase but our economy is based on strong fundamentals with a hawk eyed RBI which has economic armours in its arsenal which will shield India from any global meltdown.

The whole incident has made the world to think regarding the linkage between currency value and trade agreements. Economists have advised the countries going into trade agreement; they should have a zero tolerance clause for currency manipulations so as to prevent any contingency.

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Arpit Jain

MBA 2015-17

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