US Labels China a Currency Manipualtor and It’s Impact on the Markets

By MoneyMan | Crypto And Money | 6 Aug 2019


In a rare move by the US treasury, the US labeled China a currency manipulator. They haven’t given anyone this designation since 1994, ironically it was China at the time. 

This is another move in the expanding trade war between the two sides. 

You may be wondering why The US has done this, and of course why the Yuan devaluation had such an impact on the market. 

Lets start with what lowering the value of the Yuan does to potentially benefit China. China maintains a peg to the US dollar as it’s exchange rate. The government entity sets this rate, and changes it periodically from time to time based on economic factors, and their ability to buy/sell enough Yuan to maintain the rate. This isn’t unique, many countries hold pegs to the US dollar, and actually keep the peg. Usually when a peg can’t be maintained, the country is in a big fiscal crisis. For example when Argentina lost their currency peg, they had an economic crisis, and had a period of hyperinflation. Another example is if Barbados can’t hold its current peg, it would likely be due to their debt load and IMF restructuring. 

The main reason countries keep pegs is usually to keep their currency stable. This can be beneficial for businesses since planning is made easier, and the currency their citizens put in their bank accounts has a known value. It also is extremely beneficial for international trade since it can lead to situations where the pegged currency looks more competitive to a trading partner when its artificially low and gets adjusted. When it looks more competitive, this boosts that countries exports, since its cheaper to purchase goods their than from your own home market. This is what riled up Trump today. The Yuan has devalued about 4% since May, and since its pegged, this was done purposefully. This hurts Chinese consumers since suddenly their money is worth 4% less if they were to purchase foreign goods. However Chinese exporters are more competitive today than they were yesterday. In a trade war, that’s what Trump cares about theoretically. Of course the Chinese will try to make their country as competitive as possible so this may get worse before it gets better. 

So as a result of this revaluation of the Yuan, which had its peg adjusted, the markets all over the world had a correction today. American manufacturers are slightly less competitive now, and Chinese consumers which is a huge growing market have less disposable income. Future markets are pointing towards another huge correction tomorrow too. 

My thoughts are as always diversify from just equities, and hold real assets and some crypto. Many crypto assets are deflationary which prevents this type of manipulation in theory, and would protect any holders assets from these shenanigans. At the same time, I think this will pass once companies get over the temporary shock, and markets will recover sooner or later. In the long run the market always does. This may be a good short term buying opportunity once things settle down. 

 

If you haven’t registered for Publish0x, here’s a link

Brave Browser - Earn BAT while surfing the web

How do you rate this article?


0

0

MoneyMan
MoneyMan

Just a normal guy


Crypto And Money
Crypto And Money

Just my thoughts on making money via crypto stock or online

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.