I had the privilege of trying to explain what is happening in China, and its significance for the world, on CNBC with Kelly Evans and Bill Griffeth. Click here to watch the video.
The key point I tried to make is that it is not so much what China did today with a 2% devaluation. After all, the Australian dollar fell nearly 1.6% today too. A 2% fluctuation for a major currency in a single day is notable but happens often enough that is is not earth shattering.
Rather the key issue is what happens next. Will it operationalize its new fix setting mechanism, and as market forces have a bigger sway, will this lead to further depreciation? Will it spur beggar-thy-neighbor currency depreciation ("currency war")? Will the related drop in commodities this deter the Fed from tightening in September? Will the BOJ need to step up its asset purchase program?
Investors and policy makers will scrutinize the developments in China over the next few day. That is the only way to understand how it will put into practice what it has said. The offshore yuan (CNH) has depreciated roughly a net 1.6% after the close of the onshore market (CNY). The way that commodities, bonds and stocks traded are pricing in the worst near-term scenarios. This is what the markets often do.
Cool Video: Trying to Make Sense of Chinese Developments on CNBC
Reviewed by Marc Chandler
on
August 11, 2015
Rating:
Reviewed by Marc Chandler
on
August 11, 2015
Rating:
