Major equity markets are a sea of red in the wake of China’s falling renminbi.
The plunge in the value of China’s currency, the renminbi (RMB), is shaking world markets, and almost no major index is untouched by the ripple effect.
On Aug. 11, the People’s Bank of China, the country’s central bank, allowed the RMB to descend further and faster than at any time since 1994. Monetary authorities insisted the Aug. 11 drop, which caused the RMB to fall by 1.9 percent against the U.S. dollar, would be neither “persistent” nor “substantial,” but the RMB’s value has taken a further dive in subsequent days. The currency has fallen because traders on the free market appeared to believe the RMB was overvalued and that Chinese authorities were determined to let the market have a bigger say in its valuation. The move also makes Chinese exports cheaper, a competitive advantage for China that arrives at a convenient time, when domestic equities have taken a beating and the country’s massive economy shows signs of further stalling.
Analysts have been fretting for weeks about what they have called a global economic “contagion” stemming from China’s slowdown. The drop in China’s RMB could be a possible domino leading to retrenchment elsewhere: since Aug. 11, the flagship equity indices of 18 of the world’s major economies have all taken a hit, with the only exception being mainland China’s Shanghai Composite Index, which is currently subject to substantial central government meddling. Below, an interactive map suggests the extent to which global equity markets have suffered in the wake of China’s big move. Red indicates a loss; the deeper the red, the more severe it has been. Click on any covered country for data:
To be sure, China’s recent devaluation is not responsible for all market activity since. But it has “introduced more volatility” into the currency, according to Damien Ma, a Fellow at the Paulson Institute, constituting “new territory” to which markets elsewhere will need to adjust, assuming China’s central bank stays the course. “A more market-driven RMB means tolerating more two-way volatility,” where the currency could go down or up, Ma told Foreign Policy. “And that’s not necessarily a bad thing.”
This article has been updated.