N L Damia Institute of Management Studies and Research
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Yuan Devaluation – Will it lead to a global ‘currency war’ and world economic meltdown?
China’s recent devaluation of Yuan has raised serious concerns from financial experts world over. It appears that China is attempting to revive its flagging economy by making its exports cheaper and competitive. This can also be seen as a distress signal from Beijing policymakers – in which case, the world’s second-largest economy may be far weaker than the 7% a year growth that official figures suggests.
Yuan’s devaluation can create deflationary tendencies not only in China but also in every competing economy. While the world was expecting China to revalue its currency, it has surprised the world by devaluing the Yuan.
The Yuan has been a source of currency stability in Asia during past crises and Chinese authorities propped it up earlier this year to deter capital outflows and make a case for official reserve status at the International Monetary Fund. China’s policy shift to support exporters heightens the risk of competitive currency devaluations. There is pressure on other countries to devalue their currency leading to a potential ‘Currency War’. We should not forget the impact of competitive devaluation which took place as a reaction to the Great Depression of 1930. Is the devaluation of Yuan the beginning of world economic meltdown?
The deliverables expected –The report should discuss the following:
1.The reasons for Yuan Devaluation and the extent to which it can devaluate further.
2.The impact of Yuan devaluation on major global currencies
3.The impact of Yuan devaluation on economies across the globe.
4.Does Yuan devaluation indicate serious problems in the Chinese and other economies in the world?