An optimistic way to look at China's devaluation

CHINA'S surprise devaluation of its currency over the past two days is sure to stir up fear and loathing among the world's economic populists. (Keep your eyes on Donald Trump's Twitter account.) But the move deserves praise, not condemnation. It might even prove a boon for world growth.

Beijing spent much of the last year propping up the yuan to combat capital outflows, avoid debt defaults and win a place among the International Monetary Fund's (IMF) five reserve currencies. But with growth sputtering and deflation looming, China has now reversed course, cutting its daily reference rate by 1.9 per cent on Tuesday, the most in two decades, and by 1.6 per cent on Wednesday. The Chinese government has effectively admitted that risks are accelerating in the world's second-biggest economy.

Politicians in the United States are sure to call the devaluation a threat to American jobs, and politicians in Japan will bemoan its effects on their deflation fight. But it's important to keep a sense of perspective. China has called this a one-time fix designed to push the yuan towards a more market-determined system, in accordance with the IMF's wishes. Besides, if China were going all-in on a beggar-thy-neighbour policy, its devaluation would have been far more substantial - and even then, there's no guarantee it would have succeeded at propping up the economy.