China’s Yuan Could Fall 10% or More
Up & Down Wall Street: History suggests that China’s currency devaluation won’t be a one-time move. More trouble ahead for multinational consumer stocks.
By Randall W. Forsyth
Updated Aug. 15, 2015 1:40 a.m. ET
On a sultry mid-August evening last week, world currency markets were rocked by what amounted to nothing short of a regime change: China announced a devaluation and freer float of its currency, the yuan or renminbi.
That’s well in excess of its roughly 33% appreciation versus the greenback until last week’s devaluation.
Whether they have driven down exchange rates to gain advantage or allowed them to retreat, the changes smack of the competitive devaluations that exacerbated the Great Depression of the 1930s.
But Chinese authorities seem to have imagined that they could control the renminbi’s descent, taking it a couple of percent at a time.
There is, as I’ve written in the past, a strong case for raising the minimum wage and in general for promoting higher wages for American workers; there’s an even stronger case for effective financial regulation.
Back in 1998 the Hong Kong Monetary Authority purchased large amounts of stock to beat back a hedge fund attack on its currency, and scored a notable success.