Yuan devaluation

Taming the Dragon

Yuan Reuters_distort
Not worth as much as it was last week.
  • Why it matters

    Why it matters

    Without any global regulation, China is likely to further devalue the yuan, damaging unprepared exporters.

  • Facts


    • China has devalued its currency to a record low this week.
    • Analysts are worried the move may spark a currency war to help exporters.
    • China’s economic position of strength means it is able to do as it pleases on monetary policy.
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I still vividly remember the beaming faces. German managers in China profited handsomely from the favorable combination of weak euro and strong yuan. Some earned double from it. Bonuses increased with sales numbers and payment was in yuan.

Of course, they hoped it would continue like that for a long time, but naturally, they knew that someday the high yuan would fall and it would happen on a day when it was more favorable for China and its development to devalue its currency. That day arrived this week.

The executives may not have known exactly when it would come, but talk of devaluation has been in the air over the past few weeks as the Chinese government played all the jokers to keep the faltering Chinese economy from sagging any further.

Now, it has happened and it comes at a bad time for the German economy, though no one in Germany could seriously expect the Chinese government to care whether or not the time is right for Germany. On the contrary, Beijing did everything in its power to prevent anyone from getting wind of the devaluation beforehand, just like all monetary authorities do.

From the Chinese point of view, it’s the right decision at the right time. Anyone caught unprepared is simply not cut out to be a manager in China, as even a devaluation of ten percent could still be called fair.

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