Communist China devalued the yuan in what they say is a onetime event designed to make their currency more market oriented. Economists are concerned about more than that.
Many economists said the decline was too small to help Chinese exports due to weak global demand. But the change fueled concern the yuan might fall further, giving Chinese traders a price advantage over foreign rivals and possibly igniting a “currency war” if other governments fight back by depressing their own exchange rates.
Economist Albert Edwards with the French bank Societe Generale had strong words along these lines.
“Make no mistake, this is the start of something big, something ugly,” Edwards told the Guardian, adding that he believes the devaluation could result in a “a tidal wave of deflation” across the world.
Many believe China’s devaluation is more of a play to become one of the IMF’s reserve currencies along with the dollar, euro, yen, and British pound rather than a market correction. This could get real interesting.