| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 Asia Economy

Finfacts changes from 2015


How to use our RSS feed

Follow Finfacts on Twitter

Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.


Finfacts is Ireland's leading business information site and you are in its business news section.


Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate




Content Management by interactivetools.com.

Asia Economy Last Updated: Aug 24, 2015 - 8:27 AM

IMF defers renminbi reserve decision; Devaluations losing firepower
By Michael Hennigan, editor and founder of Finfacts
Aug 20, 2015 - 10:30 AM

Email this article
 Printer friendly page

The International Monetary Fund (IMF) on Wednesday signaled that China’s renminbi (people's currency in Mandarin)/ yuan (unit) will not be added to the Fund's basket of reserve currencies for at least a year. Meanwhile a working paper by World Bank economists confirms that currency devaluations are losing their firepower.

In Washington DC the IMF board agreed to an extension of the current basket of reserve currencies included in its special drawing rights, or SDRs, to Sept. 30, 2016.

In a statement the Fund said that the "nine-month extension is intended to facilitate the continued smooth functioning of SDR-related operations and responds to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year. The extension would also allow users sufficient lead time to adjust in the event that a decision were to be taken to add a new currency to the SDR basket."

The reference to a "a new currency" is to China's which was devalued last week as part of a plan to allow the market a greater role in exchange rates, according to the People's Bank of China.

“China has done what the Treasury has repeatedly asked for,"  said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington and author of “Markets Over Mao: The Rise of Private Business in China,” as reported by Bloomberg. “If a few members of Congress object, that is a problem for the executive branch, not China. It should bolster their chances, it is what the Fund asked for. I think the angst about the new system will be alleviated over the coming weeks.”

World Bank economists said in a working paper published last week that "in the aftermath of the financial crisis, some episodes of large depreciations appeared to have had little impact on exports (e.g. Japan). This has led some observers to question the effectiveness of lower exchange rates (Financial Times, 2015)." They asked: "Are currency depreciations becoming less effective in boosting export growth? What affects the responsiveness of exports to exchange rate changes?"

In the Financial Times last March, Ferdinando Giugliano wrote: "First came Japan, with the yen falling by just over 20 per cent against the dollar since the central bank launched a turbocharged programme of asset purchases in April 2013. Then it was the turn of the Eurozone. The euro has slumped by a similar amount over the past year on the back of the European Central Bank’s own easing moves. Even Beijing may have now quietly decided to weaken the renminbi, after letting it appreciate against the dollar in the second half of last year."

The economists looked at data from 46 countries covering the period 1996-2012 and they concluded that that [the REER (real effective exchange rate) of manufacturing exports has declined over time and that the growing importance of GVCs (multinationals' global value chains) in world trade explains on average 40% of this decline and above 50% for countries with highest GVC participation.

In particular, we find that the larger an economy’s import content of exports, or backward linkages, the smaller the impact on export volumes of a depreciation. When REER are corrected for GVC participation and exports are measured in value-added rather than gross terms, we find that the estimated REER elasticities of exports are substantially smaller and do not display a declining time pattern. These results are consistent with previous work and contribute to the literature on the impact of exchange rates on export growth by showing in a cross section that the nature of trade, i.e. a country’s involvement in global production processes, is a key determinant of this relationship.]

China gains little from assembling the Apple iPhone but there are companies with a high local content which can gain from a devaluation. However, the overall benefit for an economy may be negligible.

Related Articles

© Copyright 2015 by Finfacts.ie

Top of Page

Asia Economy
Latest Headlines
IMF defers renminbi reserve decision; Devaluations losing firepower
Japan's trade deficit widens and GDP falls despite 33% yen devaluation
China's exports slide in July; Fx reserves dip $42.5bn in month
Chinese manufacturing PMI falls for 5th straight month in July; Japan at 5-month high
China's overseas investments to surge; Ireland got €99m of €46bn invested in EU in 2000-2014
China to overtake US economy in 2026; Income per capita will be 50% of US in 2050
Manufacturing activity in China and Japan contracted in June
China's manufacturing contracted for third straight month in May; Japan in slight rise
Asia accounts for 40% of global output, two-thirds of global growth
China's exports unexpectedly fell in April 2015 after March dip
China's growth in 2015 at slowest since early 2009
China's 2015 foreign trade continues to slide
Singapore remains world’s top location for business on 50th anniversary of independence
China's manufacturing activity fell to a 11-month low in March
China in surprise rate cut to boost sagging economy
Chinese Lunar New Year: Year of the Wood Goat begins this week
China’s manufacturing shrunk in January; Regional rise except Indonesia
Profits of Chinese industrial businesses plunged in 2014
China's growth in 2014 fell to a 24-year low
Services activity in China, Japan and India in moderate rises in December
China’s manufacturing industry remains competitive despite rising wages
China revises 2013 GDP up 3.4% to 56.5% of US economy size
China's manufacturing contracts in December; Japan's grows
China's imports slide in November; Emerging markets slow
Manufacturing PMI stalled in China in November; Fell in Korea, Indonesia , grew in India
China's manufacturing output contracted in November; Japan's accelerated
Ireland not among top 67 destinations for Chinese outbound FDI in 2014
Japan fell into recession in third quarter of 2014
Services slowed in China, contracted in Japan and stagnated in India in October
Manufacturing in South Korea/ Indonesia contracted in October; India in slight rise
Two Chinese manufacturing reports show trading near stagnation levels
Bank of Japan raises money printing target; Spending and wages plunge
China's manufacturing stagnates, Japan in moderate growth
China’s economy in third quarter grew at slowest pace in five years
Chinese exports jump in September; "Sadness will return soon"
World Bank cuts growth forecasts for developing East Asia including China
Japanese business confidence slightly improves; Manufacturing sector weak
Developing Asia remains fastest-growing region in world in 2014
Chinese manufacturing PMI rose slightly in September
Japan reports 26th straight monthly trade deficit; Public debt tops ¥1,000tn