China Devalues Yuan — Why?


China devalued the yuan in what many think was a surprise move. What they do not understand is that this move is more than trying to firm up exports; this devaluation has a similar impact to raising interest rates to stem speculation. Foreign capital just lost 2%. I have stated before, the Bank of China has people with experience, unlike many central banks. This experience comes from working on dealing desks and they understand trading far better than any other central bank. True, the devaluation will help its sagging exports, but this is temporary for as the U.S. economy turns down after October, the dollar will rise further and we should expect the yuan to decline further.