New Delhi: Amidst rising geopolitical tensionsThere is growing speculation that China is considering a drastic economic maneuver – devaluing its currency, a move that economists often refer to as the “nuclear option” because of its potentially wide-ranging global impact.
Steno Research CEO Andreas Steno Larsen last week raised concerns about China’s intentions following its aggressive acquisition of global commodities. Preparing for a big one-time devaluation for CNY?” Larson wrote.
currency devaluation In theory, China could boost exports by making its goods cheaper and more competitive internationally. However, such a move could also cause serious global economic disruption trade tensions A report in Newsweek said that with key partners such as the United States.
China is increasing its gold and crude oil reserves, which could potentially provide a buffer against the economic fallout from currency devaluation. Despite high prices and weak yuan, the country’s central bank has been buying gold for the 17th consecutive month and is increasing the reserves of this metal for the 17th consecutive month.
Ishwar Prasad, a Cornell University professor and former International Monetary Fund official, highlighted China’s strategic objectives, “Official gold purchases reflect a desire to diversify foreign exchange reserves away from the dollar and other Western currencies,” Prasad told Newsweek. told. This diversification is seen as a protective measure, particularly in the face of growing geopolitical tensions with the US and economic vulnerabilities exposed by sanctions against Russia following its invasion of Ukraine.
Furthermore, there are concerns that China’s resource accumulation may be in preparation for more than just economic warfare. There is speculation that Beijing may be bracing for an international backlash that could result in a possible military confrontation over Taiwan. Michael Studeman, former head of the Office of Naval Intelligence, suggested that China was taking protective measures to protect its economy against possible future sanctions. Studeman wrote in a recent op-ed, “Xi appears to have studied the sanctions used by the West against Russia on Ukraine and the subsequent use of China’s economy to resist similar pressure.” “Long-term preventive measures have been initiated to address the deficiencies.”
While some analysts, such as Craig Shapiro, macro advisor at LadukTrading, believe that China is unlikely to devalue its currency against the dollar directly, its ongoing purchases of commodities in renminbi from sanctioned producers such as Russia and Iran are a strategic position. Gives a signal. “China’s ability to buy commodities in RMB and settle excess trade balances in gold with countries like Russia and OPEC suggests that gold buys more commodities in China than in the West,” Shapiro said.
Currency devaluation by China could have significant implications domestically and globally:
Increase export competitiveness: By devaluing its currency, the yuan, China can make its exports cheaper and more attractive in the international market. This would potentially increase sales abroad, benefiting Chinese manufacturers and boosting the national economy, especially in sectors that rely heavily on exports.
Inflationary pressures: For the domestic economy, devaluation can lead to increased import costs, especially for goods and intermediate goods priced in foreign currencies. This could lead to increased inflation, impacting the cost of living for Chinese consumers and potentially creating social and economic tensions within the country.
Global trade relations: A sudden devaluation of the yuan could escalate trade tensions with major trading partners, particularly the United States, which has previously accused China of manipulating its currency to gain unfair competitive advantages. This could lead to retaliatory measures, including tariffs and other trade barriers, further straining international relations.
Impact on global markets: Volatility may increase in international financial markets as traders and investors react to devaluation. This could affect currency, bond and stock markets globally, particularly in emerging markets which are sensitive to changes in risk sentiment.
Debt Repayment Challenges: For Chinese companies with loans in foreign currencies, the weaker yuan will increase the cost of repaying this debt. This could create financial difficulties for companies that leverage heavily externally.
Foreign investment inflows: The weak yuan could impact foreign investment into China. While lower operating costs may attract more foreign companies, concerns about further devaluation and instability may deter long-term investment.
Economic contagion: Given China’s important role in the global economy, devaluation could lead to economic contagion, which could affect economies with close trade ties with China. The trade balance of countries dependent on exports to China could be affected, while global supply chains could also be disrupted.
Steno Research CEO Andreas Steno Larsen last week raised concerns about China’s intentions following its aggressive acquisition of global commodities. Preparing for a big one-time devaluation for CNY?” Larson wrote.
currency devaluation In theory, China could boost exports by making its goods cheaper and more competitive internationally. However, such a move could also cause serious global economic disruption trade tensions A report in Newsweek said that with key partners such as the United States.
China is increasing its gold and crude oil reserves, which could potentially provide a buffer against the economic fallout from currency devaluation. Despite high prices and weak yuan, the country’s central bank has been buying gold for the 17th consecutive month and is increasing the reserves of this metal for the 17th consecutive month.
Ishwar Prasad, a Cornell University professor and former International Monetary Fund official, highlighted China’s strategic objectives, “Official gold purchases reflect a desire to diversify foreign exchange reserves away from the dollar and other Western currencies,” Prasad told Newsweek. told. This diversification is seen as a protective measure, particularly in the face of growing geopolitical tensions with the US and economic vulnerabilities exposed by sanctions against Russia following its invasion of Ukraine.
Furthermore, there are concerns that China’s resource accumulation may be in preparation for more than just economic warfare. There is speculation that Beijing may be bracing for an international backlash that could result in a possible military confrontation over Taiwan. Michael Studeman, former head of the Office of Naval Intelligence, suggested that China was taking protective measures to protect its economy against possible future sanctions. Studeman wrote in a recent op-ed, “Xi appears to have studied the sanctions used by the West against Russia on Ukraine and the subsequent use of China’s economy to resist similar pressure.” “Long-term preventive measures have been initiated to address the deficiencies.”
While some analysts, such as Craig Shapiro, macro advisor at LadukTrading, believe that China is unlikely to devalue its currency against the dollar directly, its ongoing purchases of commodities in renminbi from sanctioned producers such as Russia and Iran are a strategic position. Gives a signal. “China’s ability to buy commodities in RMB and settle excess trade balances in gold with countries like Russia and OPEC suggests that gold buys more commodities in China than in the West,” Shapiro said.
Currency devaluation by China could have significant implications domestically and globally:
Increase export competitiveness: By devaluing its currency, the yuan, China can make its exports cheaper and more attractive in the international market. This would potentially increase sales abroad, benefiting Chinese manufacturers and boosting the national economy, especially in sectors that rely heavily on exports.
Inflationary pressures: For the domestic economy, devaluation can lead to increased import costs, especially for goods and intermediate goods priced in foreign currencies. This could lead to increased inflation, impacting the cost of living for Chinese consumers and potentially creating social and economic tensions within the country.
Global trade relations: A sudden devaluation of the yuan could escalate trade tensions with major trading partners, particularly the United States, which has previously accused China of manipulating its currency to gain unfair competitive advantages. This could lead to retaliatory measures, including tariffs and other trade barriers, further straining international relations.
Impact on global markets: Volatility may increase in international financial markets as traders and investors react to devaluation. This could affect currency, bond and stock markets globally, particularly in emerging markets which are sensitive to changes in risk sentiment.
Debt Repayment Challenges: For Chinese companies with loans in foreign currencies, the weaker yuan will increase the cost of repaying this debt. This could create financial difficulties for companies that leverage heavily externally.
Foreign investment inflows: The weak yuan could impact foreign investment into China. While lower operating costs may attract more foreign companies, concerns about further devaluation and instability may deter long-term investment.
Economic contagion: Given China’s important role in the global economy, devaluation could lead to economic contagion, which could affect economies with close trade ties with China. The trade balance of countries dependent on exports to China could be affected, while global supply chains could also be disrupted.
