Thought to be due to weakening levels of trade and economic growth, the Chinese government has greatly devalued the nation’s currency, the Chinese yuan, to its lowest rate since 1994, influencing financial markets across the world.
This devaluation follows a turbulent time for the Chinese economy. A cord of weak economic data over recent months has caused the yuan to fall by approximately 2% and its lowest rate against the U.S. dollar in three years.
The central bank of the world’s second largest economy has stated that this decline is due to changes made in the Chinese economic sector with the aim of making exchange rates more market orientated.
In July of this year, Chinese exports have fallen by 8.3%. This is due to the yuan having strengthened in value whilst a currency crisis has hit many other developing countries, both in Asia and the rest of the world, having an adverse effect on China’s exports.
In the past, the market based rate has been solely determined by the Chinese central bank. It is thought that in the future, market forces in China will be gaining more responsibility and will have the ability to make greater changes, further influencing the country’s financial markets and possibly leading to a greater decline in the upcoming months.
Stephen Innes, a senior trader at OANDA, a Canadian based foreign exchange company has stated that ‘’financial markets are extremely volatile at the moment, as traders are looking for U.S. dollar strength across Asia, putting pressure on local Asian currencies and markets’’.
The news sparks fears that China have not been able to keep up with the U.S. and consumer demand in Asia and across the globe, leading to an unbalanced economy.