The Weakened Yuan

Phil Jensen


Chinese_yuanChina’s 10-year experiment with a strong yuan is over.

After years of world markets complaining about China’s devaluation policy of a low, fixed exchange rate against the dollar, the People’s Bank of China finally allowed the yuan to begin appreciating in 2005.

Fast forward ten years, with emerging markets now collapsing, China’s real estate bubble popped, commodities crashing and the Shanghai Composite Index imploding, and now Beijing has cried uncle and is once again devaluing, desperate to curtail the drop in asset prices.

Rick Kriebel 2016


This price appreciation had been urged by the U.S. in particular to supposedly remedy global trade imbalances.

As recently as Oct. 19, 2015 — just as the air was coming out of crude oil and the Shanghai Composite Index — that was still the posture of the U.S. Treasury, which said the yuan was still undervalued in a report.

“[O]ur judgment is that the RMB remains below its appropriate medium-term valuation,” the Treasury report stated.

Woodrow Wilcox


Whoops. So much for that.

Either, in its infinite central planning wisdom, the People’s Bank of China overshot its target. Or, the U.S. actually got what it wished for and “rebalanced” the global imbalances — with the unintended consequence of the China crash taking the global economy with it.

The worst part is, it could get worse, according to an Oxford Economics simulation on further yuan devaluation reported by Bloomberg Business’ Enda Curran.

“If other exchange rates respond to yuan weakness, as they did recently, the effect suddenly becomes more substantial and differentiated,” Curran wrote, adding, “Here’s how Oxford reckons this scenario would play out: Euro zone and Japanese growth would be among the hardest hit because their effective exchange rates would gain, adding deflationary pressure. That could force the European Central Bank and Bank of Japan to ramp up quantitative easing.”

So, if China keeps devaluing the yuan — as its central bank currently is — Oxford finds it will only add to the current deflationary pressure over here, bringing asset prices down even further.

Although markets have temporarily rallied on news of monetary stimulus from Europe and Japan, it is still may be extremely bearish over the longer term. Stimulus means markets are weak, not strong.

As for the Beijing’s continued devaluation, what alternative does China have? Prices are collapsing there anyway. All it can do is devalue to forestall the plunge, knowing that plunge is precisely what it will do anyway.

They’re called vicious cycles for a reason.

And until this one finds its bottom, that may mean there is more pain on the way. In the meantime, perhaps the U.S. Treasury should be more careful of what it wishes for in the future.


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Robert Romano is the Senior Editor of Americans for Limited Government (ALG) News Bureau. Americans for Limited Government is a non- partisan, nationwide network committed to advancing free market reforms,private property rights and core American liberties.
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  • John Dunn

    The West (BIS, IMF, Fed, NWO banksters) doesn’t like China and their state owned public banking system having too much independence and power outside of their monetary regime. So they need to hype up fear in the markets to convince people to sell the Yuan short and devalue their currency to pressure the Chinese to float the Yuan so they can purchase more Yuan and gain more economic control over China and eventually conquer China from within to force them into the NWO. China’s getting too strong and it’s a threat to the corrupt Western banksters in power.

    • China has been and remains a threat to the freedom of its own people and people throughout the world with their embrace of Marxist tyranny.

      • John Dunn

        But by supporting the fall of the Yuan you cripple the only power that checks the power of the western globalist banksters pushing their authoritarian world government system.

        • Frankly, I’m more concerned with the very real threats posed by a large (population and economic) belligerent country with it’s eye on world domination than I am free market businesses. Whatever makes a belligerent communist country more powerful, as a free American, I oppose. Whatever weakens such a belligerent communist country, I support.

          Free market businesses do not make law, nor do they wage war against free people and dominate them. Governments do that. If our government did its primary job (i.e. defend the people of America from foreign threats), we would not have to worry about that. And if the American people did their job (which is to hold the American government accountable to its constitutionally limited duties and ONLY those duties), then we wouldn’t have to worry about either China or about wealthy free market businesses, because if the U.S. government operated within the confines of its limited government mandate, there would be little or nothing the government could do to favor or disfavor these free market businesses, because according to the U.S. Constitution, the federal government has little power beyond dealing with external matters.

          The powers delegated by the proposed Constitution to the federal government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. - James Madison, Federalist No. 45