Currency war : Currency Devaluation and its Impact

Published on Friday, October 02, 2015
currency war
The term Devaluation was in news recently as China devalued its currency .

What is devaluation and what its impact on the China and World economy ?

Devaluation means when the one’s country reduce the value of its currency with respect to those good , services and monetary units with which currency can be exchanged.
This is done to increase export as export become cheaper when one country devalued its currency and import to that country become costlier .For E.g.1$ cost 65 rupees for country XYZ but after devaluation 1$ might be cost Rs70, so after devaluation country XYZ export to different countries become cheaper because have to pay less dollar for XYZ goods become cheaper and import become costlier as to import have to shed more money for import so it can also increase import bills one one’s country.

Why China Devalued the yuan

Recently China has devalued the value of its currency Yuan upto 4% against dollar which produced ripple effects in financial markets. As China export to other countries is declining and its economy is getting slower ,So in a surprise move People Bank of China (PBoF) devalued the value of yuan against dollar as in China government uses the U.S dollar as a benchmark against which they mange their currency value.A weaker currency will help China exporter to sell their goods abroad and put American and other countries companies at disadvantage which export goods to China as their goods becomes costlier in China , so this move by PBoC will put pressure on Central Banks of different countries to help their own exporters. So it will reignite the currency war .

Impact on India

1. Put Pressure on Indian Exporter

As India and China compete for several export items like textiles ,gems so cheaper Chinese export will add to disadvantage of Indian exporters .

2. Dumping of Chinese goods in Indian market

Due to yuan depreciation there is fear that it will help china dump cheap goods in Indian market which will impact domestic manufacturers.

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