Since China is the most significant exporter globally, any changes in its currency have a substantial effect on the international market’s situation and macroeconomic landscape overall. In particular, the recent unexpected devaluation of the Chinese yuan renminbi (CNY) to boost exports provoked controversial reactions and had varied implications for many countries. This paper aims at examining the repercussions of CNY’s devaluation for the USA and Japanese economies and the global oil industry.
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In 2015, the People’s Bank of China (PBOC) astonished the global political and economic community with serial devaluations of CNY that fall by over 3 percent despite the currency strengthening for the previous decade. The PBOC stated that this step was stipulated by its move towards a more market-oriented economy, while some experts considered that it was a deliberate attempt to favor China’s export (The Investopedia Team, 2021).
Nevertheless, Chinese trade partners, especially the United States and Japan, suffered from such actions. The devaluated yuan makes US goods comparatively more expensive, which results in its decreased demand. This also contributes to US unemployment and deteriorates the trade balance between the US and China, leading to a larger current account deficit. Concerning Japan, Yasutoshi Nishimura claims that China’s currency devaluation may have a tremendous influence on the Japanese economy since Japan is a significant exporter of machine tools and electronics (“Japan sees,” 2019). Overall, CNY’s devaluation had adverse aftermath for China’s trade partners and large international exporters.
Regarding the oil sector, the PBOC’s decision on devaluation also caused a noticeable impact. Specifically, as China is the world’s largest consumer of carbon products, the price of crude oil considerably depends on it. The devaluation of the CNY signalized to large investors that Chinese oil demand is likely to fall. As a result, the cost of the world benchmark Brent crude dropped above 20 percent due to the currency devaluation in mid-August (The Investopedia Team, 2021). Many other leading companies in the oil industry also experienced unexpected losses.
“Japan Sees ‘Enormous’ Potential Impact from Yuan Devaluation.” The Straits Times. 2015. Web.
The Investopedia Team. The Impact of China Devaluing the Yuan in 2015. Investopedia. 2021. Web.