How the Yuan Crisis Could Forge a New Currency Order

The pace of decline in China’s external currency reserves is accelerating, feeding panicky selling of the yuan and heralding a likely change in China’s exchange rate arrangements. Exchange rate pressures in China are spilling over to regional currencies and global stock markets. In January alone, China lost $99.5 billion of its dollar reserves trying to keep the yuan in its 2.0 percent official fluctuation band around 6.5419 to the dollar. In just 15 months the Chinese have lost more than $650 billion in reserves, more than the total reserves of any other country save Japan. In between massive interventions, the government has tried to stem pressure through small devaluations and increasing the costs for those shorting the yuan. This isn’t just another emerging-market currency crisis: China is the second largest economy in the world, and its response to this fire could forge the beginnings of a new currency order. Read more

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