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China Rattles Markets with Yuan Devaluation

PBOC says devaluation is a one-off event. Analysts see a move toward market-based determination of currency value, or a destabilizing skirmish in the global currency war.

By Bloomberg News | Updated on August 11, 2015

China devalued the yuan by the most in two decades, a move that rippled through global markets as policy makers stepped up efforts to support exporters and boost the role of market pricing in Asia’s largest economy.

The central bank cut its daily reference rate by 1.9 percent, triggering the yuan’s biggest one-day drop since China ended a dual-currency system in January 1994. The People’s Bank of China (PBOC) called the change a one-time adjustment and said its fixing will become more aligned with supply and demand.

"The new fixing will be quoted based on the previous day's closing, which is a real market level. The band will become the real band. This is a big step, and bolder than we expected." --Becky Liu, Standard CharteredChinese authorities had been propping up the yuan to deter capital outflows, protect foreign-currency borrowers, and make a case for official reserve status at the International Monetary Fund. Tuesday’s announcement suggests policy makers are now placing a greater emphasis on efforts to combat the deepest economic slowdown since 1990 and reduce the government’s grip on the financial system.

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