China Devalues the Yuan, Jolts Global Markets

China devalued the yuan today in a move that caught global markets by surprise. Policy makers have increased efforts to support exporters and, going forward, hope to increase the role of market pricing in Asia’s largest economy.

The Peoples’ Bank of China cut its 1-day rate by 1.9% and, thereby, triggered yuan/dollar devaluation – the biggest one-day drop since January 1994. The central bank informs only this one-time adjustment and intends to increasingly expose the yuan to market supply-and-demand.


The announcement follows a series of lower-than-expected data releases from the Chinese manufacturing industry that culminated in decreased trade balance, as reported in this week’s CCN.LA Global Economic Outlook.

It is a good time to improve quotation of the RMB central parity to make it more consistent with the needs of market development. – PBoC

Chinese authorities had been propping up the yuan to ward off capital outflows, protect forex swap borrowers and, significantly, to create a good impression for its application for official reserve status with the International Monetary Fund.

The yuan dropped 1.8% to 6.32 USD/CNY in Shanghai. The PBoC tolerates the Shanghai rate to fluctuate a maximum of 2% from its daily

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