China’s central bank on Wednesday devalued the nation’s currency for a second consecutive day, sending more shock waves through East Asian markets.
The People’s Bank of China set its reference rate — the price at which it wants its currency to trade — Wednesday at 6.3306 yuan per dollar, about 1.6 percent lower than the previous day’s 6.2298 yuan per dollar, itself a significant one-day drop from Monday’s 6.1162.
The yuan has not been this low against the U.S. dollar since 2012, a period during which the U.S. was regularly accusing China of keeping its currency artificially low — a violation of international trade rules — in order to boost exports and encourage imports.
Beijing had been allowing the yuan to rise in recent years but this had slowed China’s explosive growth rate, which has been based largely on exports.
In a Tuesday press release, the Chinese central bank said it would start using more market-oriented criteria for determining its preferred exchange rate.
But market-oriented criteria could indicate further weakening of the Chinese currency — for example, Barclays predicted a rate of 6.4 yuan per dollar by year’s end — and even it doesn’t, greater volatility is certain, a major factor in a currency part of the appeal of which was its political stability.
Tuesday’s devaluation caused world markets to tumble from both fears of a currency war and the possibility that the move reflects a sluggishness in China’s booming economy greater than feared. The Dow Jones Industrial Average in the U.S. lost 212 points, for example.
And there were numerous indications that Wednesday’s devaluation may mean more of the same. The MSCI Asia Pacific Index fell 1.4 percent and Chinese stocks in Hong Kong slid 0.9 percent in early trading. Regional currencies also took a pounding, with the Australian dollar losing a whole cent against the U.S. greenback in just a few hours early Wednesday.
• Victor Morton can be reached at vmorton@washingtontimes.com.
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