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China Devalues Currency After Reporting Poor Economic Data

China Devalues Currency After Reporting Poor Economic Data

Today China devalued its currency after reporting a series of poor economic data, a move the communist country called free-market reform but some observers suspect may be the beginning of a longer-term slide in the country’s exchange rate.

The central bank set its official guidance rate down nearly 2 percent to 6.2298 yuan per dollar marking the currencies lowest point in nearly three years.  It was the biggest one-day fall since a massive devaluation in 1994 when China aligned its official and market rates.  The move sent the Dow Jones Industrials down over 200 points in heavy trading.

The People’s Bank of China (PBOC) called it a “one-off depreciation”, but economists disagreed over the significance of a move that reversed a previous strong-yuan policy aimed at boosting domestic consumption and outside investment.

The devaluation followed recently released data that showed China’s exports tumbled 8.3 percent in July, hit by weaker demand from Europe, the United States and Japan.  Also, producer prices were well into their fourth year of deflation.

The move also hurt the Australian and New Zealand dollars as well as the Korean won, spurring talk of a round of currency devaluations from other major exporters. But some of Asia’s most interventionist central banks appeared to be keeping a hard line on their currency policy.

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