Yuan devaluation raises currency war anxiety

Singapore

THE anxiety level about a fresh round of worldwide currency skirmishes just went up by a notch. The trigger this time is a surprise, near 2 per cent devaluation of the Chinese yuan against the US dollar. The People's Bank of China (PBOC) downplayed the move as a "one-time correction" and a shift to make the currency's value more sensitive to supply and demand. But the mainland's deflating economy raises the risk of a more sustained campaign of yuan debasement, followed by tit-for-tat moves by other countries.

As a one-off, the 1.9 per cent depreciation in the PBOC's daily fixing rate against the US dollar will do very little to boost the competitiveness of Chinese-made goods - or put exporters in other countries at peril. In inflation-adjusted terms, the yuan has strengthened by 44 per cent against its trading partners' currencies since the end of 2007.