China Continues the Devaluation of the Yuan
China cut the reference rate for its money for the third straight day on Thursday, following the surprise devaluation of the yuan this week unsettled international financial markets.
The central bank get the yuan's central parity rate at 6.4010 yuan for US$1, the China Foreign Exchange Trade System said, a fall of 1.11% from the preceding day's 6.3306.
It was also lower than Wednesday's close and comes after China adopted a more market-oriented approach of computing the money rate in a move widely considered a devaluation.
The reductions have set financial markets on border, triggering stresses of a "money war" as other states feel pressure to devalue and raising questions regarding the well-being of the world's second-biggest market, where growth is already slowing.
European stock markets in London, Frankfurt and Paris closed lower on Wednesday on stresses China's market is fighting more than formerly believed. But US stocks beat early weakness and completed mostly higher.
Asian markets were mixed on Thursday but China's standard Shanghai index was up 0.74% by mid-morning.
China keeps a tight grip on the yuan, letting it fluctuate up or down only 2% on both sides of the reference rate, which it establishes day-to-day.
The People's Bank of China (PBoC) on Tuesday declared a "one time correction" of almost 2% in the yuan's value against the greenback as it altered the mechanism.
Formerly it'd said it based the fixing on a survey of market makers, but declared it'd now also consider the previous day's close, foreign exchange supply and demand as well as the rates of major currencies.
It's since lowered the central rate twice more, as well as the week's joined fall is the largest since China set up its modern foreign exchange system in 1994 when it devalued the yuan by 33% at a stroke.
Analysts seen the move as a means for China to both foster exports by making its goods cheaper abroad and drive economic reforms as it seeks to turned into one the reserve currencies in the International Monetary Fund's SDR (special drawing rights) group.
However, the unpredictability in the generally very secure unit has raised concerns, and Bloomberg News reported on Wednesday that the central bank had intervened in the market to prop it up.
PBoC economist Ma Jun said on Wednesday that China could stabilise the yuan through direct market intervention.
"The central bank, if needed, is entirely capable of stabilising the exchange rate through direct intervention in the currency marketplace to prevent [the] herd mindset causing irrational movements of the rate," Ma was quoted as saying by the official Xinhua news agency.
He also discounted the chance that China was trying to wage a money war, saying there was no need as exports were expected to pick up in the second half of the year. "China doesn't possess the demand to begin a money war to gain edge," he said.