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China currency devaluation

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Please could one of you knowledgeable folk explain in layman's terms:

How does china devalue it's own currency?

Why would it want to?

What other factors could prevent it?

What affect will this have on Chinese buying in UK?

Thanks.

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Not really qualified but I'll have a go.

29 minutes ago, Kiwi_Muncher said:

How does china devalue it's own currency?

The USD peg was abandoned in 2005. China's currency valuation is now set by the markets, but a major player is the PBoC, its central bank. This limits the range of price movements. For the last few years, most PBoC market activity has been selling dollars to buy renminbi (around $1tn so far), so China is actually not devaluing its currency, quite the opposite.

34 minutes ago, Kiwi_Muncher said:

Why would it want to?

The tension is between a free-floating exchange rate, as intended by the IMF when it added the Yuan to the Special Drawing Rights basket. The worry in Beijing is that if without the market interventions, too rapid a decrease in Yuan valuation would lead to instability. This explains the increased controls on capital movements.

37 minutes ago, Kiwi_Muncher said:

What other factors could prevent it?

China has responsibilities under its agreements with the IMF and WTO, and bilateral diplomatic relationships that restrict its freedom of action. In practice, everyone wants the Chinese economy to maintain stability so when it sacrifices a degree of free-floating exchange to that end, other countries and multinational institutions accept the interventions.

39 minutes ago, Kiwi_Muncher said:

What affect will this have on Chinese buying in UK?

The capital controls, and uncertainty around the future stability of the UK economy, offset any devaluation in the Yuan. There's no sign of any increased Yuan inflow, and because the main form of buying would be Mergers and Acquisitions which are now limited by new capital controls, no likelihood that this will increase while the Yuan's stability is under pressure. There's also no sign of an increase in luxury property bought with the proceeds of graft, again the reverse is the case.

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I read about this a bit. From 2006 until present Chinese money supply has more than tripled.
The newly created money lowers the value of existing Chinese currency, keeping their currency cheap and hence their industries / companies highly competitive.

Property values have greatly increased in China. They appear to be creating economic growth by increasing the money supply.

Unfortunately they also appear to be using printed currency to buy up swathes of actual foreign assets. I would not be surprised if their recent purchase of a chunk of the UK national grid has been pretty much for free.

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