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YUAN MORE TIME

China’s second yuan bomb in two days caught a lot of people off guard

Damaged 100 yuan banknotes are seen on a table at a bank branch in Foshan, Guangdong province after they were bitten by white ants.
REUTERS/Stringer
The PBOC is ripping up preconceptions and reconceptions.
This article is more than 2 years old.

It turns out that China’s major devaluation its currency yesterday (Aug. 11) wasn’t a one-time deal.

The People’s Bank of China dropped its exchange rate again this morning (Aug. 12) by another 1.9%, and everyone’s confused. As we explained yesterday, the move is partially a move to get in good with the International Monetary Fund. As the Financial Times’s Gavyn Davies notes, it also shows that China is adding the renminbi to its toolbox (paywall) as a way to manage its economy:

Other countries have found that the exchange rate is the most effective way of easing monetary conditions, and China is now signalling that the era in which it was the sole major exception to this general rule is over.

Meanwhile, markets are interpreting the move as evidence that China’s economic slowdown is worse than most people thought. Here’s how investors around the world are digesting the news (hint: poorly).

The S&P 500, down 1.1%

Germany’s DAX, down 3.3%

France’s CAC 40, down 3.7%

Hong Kong’s Hang Seng, which finished down 2.4%

📬 Kick off each morning with coffee and the Daily Brief (BYO coffee).

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