China devalues its currency Yuan: What will be the worldwide impact

Zee Media Bureau

New Delhi: China cut the value of the yuan against the dollar for a second consecutive day Wednesday, trimming the reference rate by 1.62 percent and sending a new shockwave through financial markets.

This is the biggest devaluation in the Chinese currency since 1994.

Here are a few implications following devaluation of the Chinese currency.


1. The devaluation of the yuan, intended to boost Chinese exports, has made investment in China cheaper. This is leading foreign investments away from India.

2. The move has strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee.

3. India's exports will be hit and the trade deficit might widen after the devaluation of yuan, which is bound to raise the competitiveness of outbound shipments from the neighbouring country.

4. The dramatic move surprised markets and led to a wave of selling on US and European equity bourses, as well as across many commodity exchanges.

5. The value drop of yuan against the US dollar will put pressure on the US because it wants the yuan to appreciate, which would help with its trade.

6. Analysts are also calculating the devaluation`s impact on the timing of the US Federal Reserve plan to raise its near-zero federal funds rate this year. This is fueling further speculations that Fed might not raise rates.
With Agency Inputs