Currency War? Chinese Move Shakes World Markets

Country's economy may be in worse shape than thought
By Rob Quinn,  Newser Staff
Posted Aug 12, 2015 4:57 AM CDT
Updated Aug 12, 2015 6:50 AM CDT
Currency War? Chinese Move Shakes World Markets
People walk past China's central bank in Beijing.   (AP Photo/Andy Wong)

In a move that some analysts fear could be the start of a "global currency war," China's yuan dropped again today, dragging other Asian currencies down with it. Today's drop against the dollar was the second biggest since 1994, exceeded only by yesterday's, and the rapid fall has led some to believe that the country is trying to boost exports and create jobs at the expense of rivals like South Korea, Reuters notes. It's not clear how long the drop will continue: China has described the devaluation as a "one-off," and the New York Times notes that with $3.5 trillion in foreign currency reserves, China certainly has the ability to prevent any unwanted falls in the yuan.

A change in the tightly controlled exchange-rate mechanism means the yuan could continue to drop 2% a day, the AP reports. The IMF has welcomed the move as a way to give market forces more control of a currency that China wants to play a bigger role globally, but US lawmakers are skeptical. "For years, China has rigged the rules and played games with its currency," says Sen. Chuck Schumer, per the AP. "Rather than changing their ways, the Chinese government seems to be doubling down." Today's drop in the yuan led to sharp falls in world markets, which analysts believe were caused by fears that China's economy is in worse shape than previously thought, the Guardian reports. (More China stories.)

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