Tags: China | currency | war | yuan

Experts: China Ready to Join Currency Battle in Earnest

By    |   Wednesday, 18 February 2015 02:18 PM

Currency war is raging around the world, as central banks outside of the United States seek to devalue their currencies to boost their sluggish economies.

And China is poised to intensify its involvement in the skirmish, many experts say.

"The economic backdrop, with a race to the bottom, tells me that the [yuan] is likely to experience weakness in the years ahead," Russell Thompson, chief investment officer at Cambridge Strategy hedge fund, tells The Wall Street Journal. China is "caught in a debt trap."

China's slowing economic growth will push the government to depress the currency, foreign exchange market participants say. Chinese GDP rose 7.4 percent last year, the slowest rate in 24 years.

The yuan has slid 0.8 percent so far this year in mainland trading, after dropping 2.4 percent in 2014, its biggest annual decline since the Chinese government began letting the currency drift upward in 2005.

"The market has gone as far as the market can go without a policy move," Chris Morrison, head of strategy at hedge fund Omni Macro Fund, tells The Journal. The problem is, "the Chinese authorities don't want to appear panicked or under pressure, as this will only encourage [Chinese yuan] outflows in the short run."

To be sure, not everyone sees the global currency devaluations as a war.

"There's been quite a bit of ink spilt over policymakers competing with one another to depreciate their currencies to the point that some suggest this could be a repeat of the 'beggar thy neighbor' strategy of the 1930s," Charles Lieberman, chief investment officer at Advisors Capital Management, writes in a commentary provided to Moneynews.

"Neither part of this view is correct. In fact, relative currency movements are simply part of the market's response to policy efforts in each country to stimulate growth. And none of this bears any kind of resemblance to the self-defeating tariffs of Smoot-Hawley in the 1930s."

Lieberman actually sees all the currency devaluations taking place overseas as a good thing. "Collectively, today's policies will improve economic conditions on a global basis, although they may take some time," he argues.

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Currency war is raging around the world, as central banks outside of the United States seek to devalue their currencies to boost their sluggish economies.
China, currency, war, yuan
352
2015-18-18
Wednesday, 18 February 2015 02:18 PM
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