The Devaluation of the Yuan Tests China’s Rise as a World Power

Thursday, August 27, 2015
By Paul Martin

By Ariel Noyola Rodríguez
Global Research
August 27, 2015

After the devaluation of the yuan, the international financial markets started trembling. Washington accused Beijing of taking advantage of the market. As China wants to incorporate the yuan into the Special Drawing Rights, it is inconvenient to prolong the devaluation. Furthermore, if a currency war broke out, China would risk increasing the economic and geopolitical tensions between countries in the Asian-Pacific region. That way, the United States would have more possibilities to disrupt regional co-operation initiatives and thereby undermine China’s rise as a world power.

The three devaluations of the yuan, between 10 and 12 August, have key implications for the world economy and the geopolitical balance in the Asia-Pacific[1]. The “relatively big” trade surplus keeps the effective exchange rate “relatively high” and therefore, it is not “entirely consistent with the expectations of the market”, specifies the People’s Bank of China in a statement. The investors’ panic will not last long. The exchange rate ends up at 6,3306 yuan per dollar and the devaluation will not increase more than 5%.

Every time China shows interest in incorporating the yuan into the Special Drawing Rights (SDR)[2], the currency basket the International Monetary Fund (IMF) established in 1969, it is clear that the worth of its currency must remain stable, as it is one of the requirements that world currencies have to meet (the dollar does not meet this requirement and as a result, it decreased 70 to 60% as an international reserve of central banks between 1999 and 2014)[3].

The media campaign against the yuan

However, most of the Western press did not have any problem with sustaining that the devaluation of the “currency of the people” (‘renminbi’) is a way to support the export capacity of the economy deviously. Donald Trump, the favourite pre-candidate for presidency on behalf of the Republican Party, was dead set against the measure taken by the central bank: the Chinese try to “destroy” US industries.

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