Devaluation of China's currency may not be one-off event

THE People's Bank of China (PBOC) stunned markets on Tuesday by allowing the yuan to depreciate by almost 2 per cent against the US dollar in a single day.

The big question is whether this is just a one-off move, or could it mark the start of a "race to the bottom" among Asian - and other emerging market - currencies?

The PBOC said that the policy change represented a one-time adjustment, reflecting a revision in the bank's approach to calculating the yuan's daily mid-point to make it more market-determined. But the upshot was the biggest one-day drop in the currency since the unification of the official and market exchange rates in January 1994. The knock-on effects on other currencies was immediate. Currencies of the Asean economies in particular took a hit. The Malaysian ringgit fell to close to four against the US dollar - the lowest level in 17 years. The Indonesian rupiah also dropped to a 17-year low of about 13,600 to the US currency, while the Singapore dollar approached 1.40 against the greenback, a five-year low. The South Korean won also fell.