Saturday, August 29, 2015

Benjamin J. Cohen - The Value of China's Devaluation

Writing an article that appears in Project Syndicate, Benjamin J. Cohen offers his view that the recent move by China to devalue the yuan may be just another step taken to get it into the SDR currency basket. Below are a few quotes from his article.


Earlier this month, global financial markets nearly imploded. From East Asia to Western Europe, currencies swooned and equity prices tumbled – all because of China’s decision to allow a modest devaluation of its currency, the renminbi. China’s economy is on the brink of collapse, pessimists warned. A new era of currency wars is about to be unleashed, doomsayers chimed in. To call this an overreaction would be a gross understatement.

Admittedly, the Chinese economy has been slowing, not least because of a sharp decline in the country’s exports. And devaluation of the renminbi could be viewed as an aggressive move to reverse the export slide and restore domestic growth – a move that could prompt competitors in Asia and elsewhere to push down their exchange rates as well, triggering an all-out currency war. So, in this regard, investor fears were not without merit.

But how serious was the threat? In reality, China’s devaluation was puny – by the end of the week, less than 5% in all. Compare that to the euro’s 20% drop so far this year, or the yen’s 35% dive since Japan embarked on its “Abenomics” reform program in late 2012, and it is clear that overblown headlines about the renminbi’s “plunge” were woefully misleading. Had China really wanted to grab a bigger share of world exports, it is hard to imagine that its policymakers would have settled for such a modest adjustment.

China’s real motivation seems to be more far-sighted.  . . . . . . 

Click here to read the full article in Project Syndicate

Added note: Stephen Roach weighs in on China in his new article that you can read here.

Added note: Raghuram Rajan (India ) says don't blame only China for stock rout

Added note: Alasdair Macleod provides his take on China's moves in the global chess game

Added note: Here is Jared Collins take on the move by China (agrees with Benjamin Cohen)

Added note: CNBC - Now we have "QT" in China?


  1. I agree. China has been criticized in the past for pegging the yuan to the dollar. A slight devaluing of the yuan to show a controlled move toward a more free floating currency without complete collapse. We all saw the effects of world equity markets when just a small devalue was made, and the plunge protection teams from both countries have had to work to restore some stability around the world. I would expect further smaller stepwise devaluations in the yuan in the future, now that they have seen some correlation to the steps the world will have to interfere when devaluation does occur. They are not going to let it completely free float from the USD overnight.

    Once they can unpeg all major regional currencies from the dollar, it will be easier to peg them to the SDR, in my opinion. That could take years in small steps be able to control a complete financial panic.