Carnegie Market Blog

 

Chinese Currency Devaluation

Posted by Brent Luce on Aug 11, 2015 4:26:00 PM

Today’s big market news was that China decided to abruptly devalue their currency with the biggest move in over twenty years.  In recent years, China has been trying to move toward a model of growth via consumption and away from a reliance on external investment.  Part of this has been the move toward a more free-market currency policy.  Moving toward this new economy takes a long time, and given recent economic weakness in China, they decided to take a step back and devalue their currency to help strengthen their economy.  This decision rippled through the financial markets, contributing to a one percent loss in the U.S. stock market.  Many well-known stocks with Chinese or commodity exposure were down significantly more than the overall market.  On paper, this currency move should be good for safe-haven and defensive assets, and bad for commodity prices and stocks with Chinese exposure.   At the simplest level, it makes goods and services originating in China cheaper and makes things made elsewhere more expensive for people in China. 

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Topics: China, Currency

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