Changes to some reserve requirements by the People’s Bank of China this week that made it easier to short the yuan onshore and bet against it offshore had raised speculation that the authorities were worried about the currency’s recent strengthening.
China’s central bank shocked markets on 11th August when it devalued its currency, the yuan, by lowering its daily mid-point trading price to 1.87 per cent weaker against the US dollar. A day later, the central bank sent shockwaves again with a second devaluation, pushing down the price by another 1.62 per cent against the US dollar. Fears have mounted of a regional currency war as China’s moves come on the back of the softening of Japan’s yen and the Korean won over the past year. China’s currency devaluation is seen largely as a bid to boost the competitiveness of its exports but is not without implications for its ambition to internationalise the currency and risks triggering capital outflows.