Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog

China's Currency Devaluation in Perspective
Jesse Richman, 9/12/2015

This blog post is an exercise in the important art of pointing out the obvious.  China's devaluation versus the dollar in August, which shook world markets, was very modest in comparison with the enormous rise of the dollar versus world currencies over the last year.  China's devaluation is unlikely a sign of massive weakness.  More likely a modest recognition that by staying tied to the dollar China was forcing its currency into an unreasonable stratosphere.  As Europe, Japan, and much of the developing world have devalued massively against the dollar, CNY exchange rates were pulled into uncompetitive territory with us.  An irony of China's insistence on pegging its currency to the dollar is that this has made China vulnerable to the same hugely out-of-whack exchange rates that continue to undermine U.S. economic competitiveness.  Two maps from CNN show this. 

The first map shows gains by the US Dollar versus world currencies year over year.  The dollar is up by more than ten percent against every currency except the Yuan and the Pound.  And the gain versus the Yuan is the most modest of any.  

By pegging to the rapidly appreciating dollar, China has faced major currency appreciation versus almost all major currencies.  Little wonder China's exports (like America's) have suffered. 

Comment by Larry Walker, Jr., 9/14/2015:

Very interesting!