Will China join the currency war?
Quentin Smith
Corporate Communications | Media Relations | Venture Capital | Circularity | Regenerative Economy Solutions
Weak growth and intensifying deflationary pressures have caused Chinese officials to worry that the strong renminbi is damaging the economy.
If global growth remains lacklustre, the currency war is likely to continue as many countries have lost monetary and fiscal policy flexibility. Some market players predict that the renminbi might soon be dragged into the currency war and be devalued by 10%.
Even rational governments have strong incentives to engage in a currency war, even though such a war is a negative sum game with a lose-lose outcome when everyone is involved.
China’s weak growth momentum and intensifying deflationary pressures together with a weak euro and yen are increasing the tail risk of renminbi devaluation, although this is not our base case. If China were to devalue, it could send global interest rates and Asian and commodity currencies lower.
Read more on this from our Senior Economist for Greater China here: