China and the Yuan
If China's devaluing the Yuan, it suggests that the economy there is slowing down too much. China remains export driven, and a cheaper currency makes exports more competitive.
Sources told Reuters that the move to devalue the yuan reflects a growing clamor within Chinese government circles for a devaluation of perhaps up to 10 percent to help struggling exporters.Fundamentally however, exports mean that a country generates real goods, and then exchanges them for numbers in a spreadsheet, overall it's a better deal for the importer than the exporter. Life in an export-driven economy means you work hard, but don't end up with much for it because most of your output has been traded away for digital beads. Mosler (and MMT) argues:
In a weakening global economy from a lack of demand (sales) and ‘western educated, monetarist, export led growth’ kids now in charge globally, the path of least resistance is a global race to the bottom to be ‘competitive’. And the alternative to currency depreciation, domestic wage cuts, tends to be less politically attractive, as the EU continues to demonstrate.
The tool for currency depreciation is intervention in the FX markets, as China just did, after they tried ‘monetary easing’ which failed, of course. Japan did it via giving the nod to their pension funds and insurance companies to buy unswapped FX denominated securities, after they tried ‘monetary easing’ as well.
The Euro zone did it by frightening China and other CB’s and global and domestic portfolio managers into selling their Euro reserves, by playing on their inflationary fears of ‘monetary easing’-negative rates and QE- they learned in schoolNo country is pursuing a fiscal strategy for increase demand and reduce unemployment. Ultimately, fiscal is all that will work, so we have our mix of deflationary low interest rates, increased risk of credit problems, and export-driven devaluation.