Repercussions of China Currency Depreciation on the World

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The market immediately responded to the news. Oil dropped 4 percent on the news, while Copper dropped 8 percent.

b) Low-interest rates by the Federal Reserve might stay on
Worsening economic indicators in one of it’s major trading partners might convince the U.S Federal Reserve that interest rates should stay lower for a little more time. This would mean more public money investments, whether in tech stocks or emerging economies, especially now that China has become a less attractive investment destination.

c) Currency Wars
A lot of people have been talking about currency war for a long time, but they never really happened? However, if China continues devaluating its currency to bail out its falling exports, then expect other economies, already facing the brunt of a falling global demand, to follow suit in attempt to get a competitive advantage in exports.

d) Deflation
The world has long seen China as a savior, its ever-enlarging economy propelling the world towards larger growth. However, falling export numbers, stock market collapses, less than projected growth and currency devaluation are all major fault-lines, and a sign of a slow-down in the world’s most populous nation. This will heavily impact the global economy, particularly developed nations.

Next, we have written about the Stock Market collapse, and how all these moves affect India

http://www.slideshare.net/myvaluetradeofficial/chinas-turbulent-economy-summer-of-2015

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This is a part of a series on China’s current situation. The first post, on the Yuan devaluation can be found here. The next post on the series is on the latest Market crash.

Over the past decade, China has emerged as the second largest economy in the world, the world’s factory and the largest consumer for several commodities. The age-old adage- When the US sneezes, the whole world catches a cold can now easily be applied to China.

And on August 11th, China sneezed. It continued sneezing for the next three days, causing all sorts of worry and activity amongst the other economies.

We are referring, of course, to the Yuan devaluation. While the devaluation was just about 3%, here’s the impact it will have on the rest of the world

a) Cheaper Commodities: China’s voracious appetite for commodities meant that several economies, notably Australia, began using Yuan for transacting with China. Now that Yuan has been devalued, China will now be able to buy commodities for a lesser rate.

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