Coutts: China Currency Movement No Big Deal

China's currency movements are much less dramatic than the headlines suggest says the Queen's Bank - don't expect much impact on the global economy

Coutts 17 August, 2015 | 3:40PM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Alan Higgins, UK CIO for Coutts give his views on China.

Last week’s yuan devaluation by the People’s Bank of China (PBOC) initially led to a plunge in the yuan, while government bonds rose and equities fell on fears of a slowing Chinese economy. But we believe the PBOC’s move was as much about moving towards a more flexible exchange rate policy as worries over growth.

The PBOC line is that the devaluation is part of structural reforms intended to make the yuan more responsive to market forces. This reflects China’s desire for the yuan to be granted “reserve” status by the International Monetary Fund (IMF). That requires inclusion in the IMF’s Special Drawing Rights (SDR) – an internationally recognised reserve basket including the dollar, euro, sterling and yen, which is currently undergoing a five-yearly review due to be completed by year end. 

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