Is China manipulating its currency?

The ongoing trade was a conflict between US-China rose to the extreme with China weakening its currency in retaliation to US tariffs.

Currency manipulation – intentionally weakening of one’s own country’s currency to impact another economy.

Impact on Asian countries

China an export-driven economy by reducing currency it opened further markets for other countries to import China’s product at low cost instead of other countries.

  • Like Indonesia, Vietnam, Bangladesh rely on footwear export and textiles their economy would suffer.
  • China’s import would be costlier this would promote domestic production causing import from other countries. India-China trade will further decline as export of spices and others would reduce.
  • Newmarket like Europe, Florida, Asia, France would be open to China’s cheap goods, this would also reduce trade reduce purchase from others. In case India export would decrease and import, as usual, has caused further trade deficit – eco slow down.

Impact on India

As China no longer the largest trading partner of the USA it opens opportunities for India to expand its market in terms of geopolitics relation can be strengthened.

What India can learn?

According to economist if India lets its currency fall it can increase its exports w/c can balance and import (main oil) – boost the domestic market.

However, tourism/foreign exchange will suffer.

Way forward

Though India aims but it will be only short term, long term impact of China’s manipulation will severely encroach Asian countries. The need of the hour is to take necessary steps by IMF and diplomats to cooldown the currency war turned trade war.

RBI Grade B 2019

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