CHINESE STOCK MARKET FALLS WITH DEVALUATION OF CURRENCY AND INVESTOR IN ALARM WHAT WILL BE THE NEXT?? Global market investors assumed that there will be a currency war........!! hence china devalued the Yuan by 1.9 % have a look and let me know your judgement whether their devaluation will lead currency war or not.

1. DEVALUATION OF CHINESE
CURRENCY (YUAN)
Presented by
Mr. Rohit Banskota
Mr. Santosh Adhikari

2. A BRIEF DETAILS ABOUT CHINA
CAPITAL BEIJING
LARGEST CITY SAHANGAI
OFFICIAL LANGUAGE STANDARD CHINESE
GOVERNMENT SOCIALIST SINGLE PARTY STATE
LEGISLATURE NATIONAL PEOPLE’S CONGRESS
AREA 95,96,961 SQUARE KM
GDP $ 11.212 TRILLION
PER CAPITA INCOME $ 8,154
CURRENCY YUAN OR RENMINBI $1= 6.17 YUAN

3. INTRODUCTION
 The people of China is a sovereign state in East Asia with
population of over 1.35 billion
 The PRC is a single party state governed by the communist party
of China
 China is the world’s second largest country by land.
 China share the border with 16 countries including Nepal, India,
Bhutan, Burma etc.
 China is also the world’s largest exporter and second largest
importer of goods

4. CONT…
 China was one of the first nations on earth to create currency
and replace barter
 China experimented paper money around 910 AD during the first
dynasties period.
 Much later in 1989 the Yuan was introduced as a silver coin
derived from Spanish dollar
 Much later the modern Yuan is also called Renminbi (RMB) which
translate as people currency

5. CURRENCY
 Currency refers to money in any form when in actual use or
something that is used as a medium of exchange.
 In today’s economy a currency is generally accepted form of
money, including coins and paper notes, which is issued by a
government and circulated within an economy. Used as a
medium of exchange for goods and services, currency is the
basis for trade.
 It can be classified into fiat money and commodity money.

6. EXCHANGE RATE
 A price of a nation’s currency in terms of another currency.
 An exchange rate has two components i.e. Domestic currency
and Foreign Currency.
 Exchange rate could be determined through (a)Fixed &
(b) Floating.
 The Moment of exchange rate can be understand through
appreciation and depreciation

7. DEVALUATION & REVALUATION
 Devaluation means a deliberate downward adjustment to the
value of a country’s currency, relative to another currencies.
 Devaluation is a monetary policies tool of countries that have a
fixed exchange rate or semi fixed exchange rate.
 Revaluation means increase in the price of the currency within a
fixed exchange rate system.

8. WHAT CAUSES THE FLUCTUATION IN
CURRENCY VALUE
 Changes in the imports and exports of the currency
 Changes in the interest rate
 Changes in inflation rate
 Exchange rate policies
 Government policies

9. ADVANTAGES & DISADVANTAGES OF
DEVALUATION
 Export become cheaper and more competitive to foreign
buyers.
 Lead to an improvement in the current account deficit.
 Higher exports and aggregate demand can lead to higher rate
of economic growth.
 Import are more expensive.
 Cause demand pull inflation due to AD.
 Reduces purchasing power of citizen abroad

10. EXCHANGE RATE MANIPULATION
 Effects of reduction in the exchange rate : A reduction in the
exchange rate will reduce export prices and assume demand is
elastic hence export revenue will increase. A fall in exchange
rate will rise import and assume elasticity of demand import
spending will fall.

11. EXCHANGE RATE MANIPULATION
 Cost pull inflation: A fall in exchange rate is inflationary for a
second reason because the cost of imported raw materials adds
to production costs and creates cost pull inflation.

12. EVALUATION OF EXCHANGE RATE
POLICY
 Exchange rate policies can be evaluated through
a) No. Of share of output traded internationally.
b) Changes in Exchange rates( Devaluation & Revaluation)
 Hence lowering exchange rate called devaluation can raise
aggregate demand, increase GDP, Create Jobs through
multiplier effect & Lead balance of Payment.
 Alternatively raising exchange rate called revaluation can help
reduce excessive aggregate demand, control inflation.

13. HOW COUNTRY DEVALUE THEIR
CURRENCY
 Countries devalue their currencies only when they have no other
way to correct past economic mistakes - whether their own or
mistakes committed by their predecessors.
 It does encourage exports and discourage imports to some extents
and for a limited period of time. As the devaluation is manifested in
a higher inflation, even this temporary relief is eroded.
 Devaluation can be made through :
a) Fixed Exchange rate
b) Floating Exchange rate – crawling peg, base band, snake in the
tunnel

14. CHINA EXCHANGE RATE POLICY
 In 1994 exchange rate regime was fixed ( Pegged)
and devaluation was done by 2%
 In 2005 end of fixed exchange rate ( pegged) and
introduce floating exchange rate ( managed
exchange rate).
 And currently devaluation is done by 1.9% ( 11th Aug
2015).

15. DEVALUATION OF YUAN FOR THE FIRST
TIME IN TWO DECADE & WHY IT MATTER
 During 1994 devaluation took place for the first time having close
to 2% of its value
 Who decide that the Yuan is worth?
 How is the Yuan’s value controlled?
 What changed about how the Yuan is valued?
 What will happen next?

16. WHY CHINA CURRENCY CRISES
MATTER?
 It could be serious
 A less costly Christmas
 Cheaper petrol pump
 Delayed rate rises
 Deflation, deflation, deflation
 Even more pain for Greece
 Currency war

17. WHAT CHINA YUAN MOVE MEANS
FOR EMERGING MARKETS
 Heavy losses for emerging market that export commodity to
China
 It is also a major concern for developing countries that compete
with china in exporting similar goods and services to similar
destination.
 Lower the future path of USA
 Developing countries have to suffered against the strengthening
of US dollar and expectation of higher interest rates.

18. IMPACT CAUSE IN PRESENT SCENERIO
 A spectacular crash in the Chinese stock market in which 30% of
value of share was wiped.
 Government astonished an array to measure to try to stop share
price sliding
 Financial institution like insurance companies to increase their
exposure to stock.
 Hence there is short game and a more important long game
 The positive impacts of this strategy can outweigh the near term
risk

19. FX TOP GAINERS AND LOSERS IN LAST
FIVE WEEKS

20. CONCLUSION
 China devalued the Yuan by 1.9% against the US dollar for the
second time to boost the export and to take it a step nearer to
becoming an official reserve currency.
 U S A consistently arguing that devaluation damaging US export
and this could force other Asian countries to devalue, making
export to the US cheaper and increasing Washington's trade
Deficit.
 Chinese businesses compete with regional rivals to supply the
world with everything from raw materials to finished goods
thereby making product readily available with written tag
“MADE IN CHINA”

21. CONT…
 Currency value is a powerful economic lever in any nation and
china ‘s economy is weakening
 Flow of money have hurt china too
 Devaluation become inevitable as a result.
 The weaker Chinese currency could hurt emerging Asian nations