Effects Of Devaluation Of Yuan For Chinese Economy

On August 11th China’s central bank has cut the rate of the national currency, the Yuan by nearly 1.9%. The next day it devalued it by a further 1.6% to around 6.3306 per dollar and on the next day by a further 1.1% (Chandran, 2015). It seems to be a really small devaluation, but because China’s rapidly economy growth is such a major motor for the global economy, this policy could be a wave to Chinese market, even the global economic market. This essay will talk about the impacts of devaluation of Yuan for both Chinese economy and other countries’ economy. Firstly, it presents reasons why China decided to devalued Yuan. Then, it outlines the possible influence taken by that policy in China. Finally, it examines what will happen if China’s†¦show more content†¦Also devalued Yuan made Chinese export goods cheaper to become more competitive in the global market and increase the export values to the expectedly number. Another argument is that China preparing to reform its Yuan policy in an effort to have it include in the International Monetary Fund’s Basket of â€Å"special drawing rights† (SDR) reserve currencies (Spence, 2015). He (2015) also points out that a reasonable adjustment of Yuan’s value is good for it to be admitted to the SDR, which already include US dollar, Europe’s euro, British pound and Japanese yen. What’s more, there are a lot of benefits to join in SDR, Mobius points out that it can potential to reduce borrowing costs and promote Chinese companies overseas expansion, to allow the main commodities such as iron trade contracts denominated in Yuan, so reduce the foreign exchange risk caused by dollar, and strengthen the stability of Chines trade growth. Based on the reasons point out above, to make the best profits, China’s Central bank decided to use this monetary policy – devalued national currency. Having discussed the arguments put forward about the influences of this monetary action in China, firstly, exchange rate is the rate at which amount of one currency can exchange for one unit of another currency (Sloman, 2015). Devalued Yuan can show as reduce the Chinese exchange rate. BBC Business group (2015) points out that make Chinese exports become cheaper and more competitive to other