While China's central bank devalued the renminbi earlier this month, many foreign commentators, viewing the move as a blatant attempt to boost Chinese exports, warned that a new round of currency wars was coming. But there are good reasons to believe that the move was not intended to boost trade competitiveness.
While Boris Johnson, the likely successor to British Prime Minister Theresa May, takes his country down a path of diminished trade, the European Union is negotiating one of the largest free-trade agreements in the world. One really has to wonder what the "buccaneering" Brexiteers have to complain about.
For months, the world looked on as Turkish President Recep Tayyip Erdoğan attempted to reverse the outcome of the city's municipal election. But now that Erdoğan's party has been defeated once again (and massively so this time around), his fundamental weakness has been exposed – as has that of populist authoritarians everywhere.
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BEIJING – On August 11, the People’s Bank of China (PBOC) lowered the central parity rate of the renminbi by 1.9%, sending shockwaves around the globe. Many foreign commentators condemned the devaluation as a blatant attempt to boost Chinese exports – a move that would, they warned, spark a new round of currency wars. But there are good reasons to believe that this was not China’s motivation at all.
In fact, China knows full well that currency wars are self-defeating. During the 1997 Asian financial crisis, China’s economic situation was much worse than it is today, but the government still resisted the temptation to devalue the renminbi – and the country managed to emerge from the crisis virtually unscathed.
Today, a devaluation would probably do little for China’s trade surplus. After all, the country already accounts for more than 12% of global exports, so expanding its share further would probably worsen its terms of trade. The dominance of processing trade in China – the import of raw materials and components and the export of finished goods – makes the effectiveness of devaluation even more dubious.
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