During the monsoon very monotonous (At least for me) news was China's currency crisis. So, what are you waiting for let's do digging? Yeah! This is what we do "dig!dig!dig! and only dig!
WHAT DO YOU UNDERSTAND BY DEVALUATION OF CURRENCY:-
Everyone knows that each country has certain semi-fixed or fixed exchange rate. Devaluation is the monetary policy mechanism of any country which has this rate. This is purposive and official downward of one country's currency within a fixed exchange rate system or relative to another currency. Devaluation gives a path to the Monetary Authority to officially set a new fixed rate with respect to a foreign reference currency. Another main reason for doing devaluation of the currency is to get to grips with trade polarity. Let's understand this with one fine example- "Suppose India has done devaluation of Rupees. Now it's going to export some pulses, iron or anything else to any country. What would happen? On export basis value of India's exports will be less expensive because of devaluation and contradictorily domestic consumers will pay more and obvious reason is more expensive import's goods.
CHINESE DEVALUATION:-
China triggered this "devaluation" term by cutting renminbi's value down 4.4% against the U.S. dollar. It wasn't started just now. In, 1994 China had done this type of depreciation and in 2007-2010 (when the first wavelet of credit crunch discerned) it created this fuss again. When this "Price Fall" frolic began, the central bank of china had dropped the interest rates and bank reserve requirements. Now, this was the second time when prices fell ceaselessly and Chinese government was steadfast to reassembled the utmost brokerages to form $19 billion funds to buy shares and dabbled into the market to buy stocks too. But this didn't work out and "Margin Lending" conceived. Eventually, China was bound to lower its currency value.
INNOCUOUS OR INOPERABLE:-
This devaluation can distress many Chinese policymakers and end up with losing patience moreover reaching for the familiar prop of a cheap currency. The exporter can be let down.
China has its products across the entire high streets of any country. This factor makes Chinese product less competitive as well as gives a boost to Chinese wages. But on the other hand devaluation has been jolted the China's Asian rivals, who don't want to miss out a single chance to compete harder in retaliation and you know that result won't be in favour of China.
Chinese devaluation is a menace to oil prices as China has unquenchable demand for natural resources and this could lead the drop in the cost of various commodities, which could be oil or iron or something else.
Recent news was about how Sensex fell down to 9 years lowest mark. Even crude prices fell to $40 for the first time in six years. The huge impact could be felt when overseas investors pulled out 2000 crore rupees from the Indian market. They did this at the beginning of August when the Chinese stock market was in the initial phase of crashing. But our main concern is "Should we be worried about this?" My answer would be "No, not at all". There are some factors on which I would like to draw your attention. See China is the second-largest economy in the world which is twice the real growth rate of India. China's worldwide export is 12% which is on the rough term (Maybe I am not on exact statistics). Now, do you want to know about India's exports term? India has an export percentage of 2. India has an economy which works on slow, steady and inward-looking factors. We don't need to do devaluation to compete with U.S. economy or making any competitive export like China do.
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