“No nation can devalue its way to prosperity”
Quote from Ndubuisi Ekekwe on August 10, 2019, 2:46 PMCurrency devaluation is never a good thing. Nigerian economy has struggled for years because of just that. You may think you are helping your export by making it artificially cheaper since your currency is cheaper when in fact you are making lives harder for your local companies that took foreign loans in foreign currencies. Devaluation cannot save any nation without sound economic fundamentals. Nigeria is yet to learn lessons on that. So, I am curious as to why China is going that path; I agree with this summary from Fortune Newsletter.
As the Financial Times explains here, a weaker yuan might help boost Chinese exports a tad by making them cheaper in dollar terms. But the downsides of devaluation are that: it will encourage capital flight (a huge problem in China); put more pressure on Chinese property developers and other companies struggling to repay dollar-denominated debts; and undo Beijing’s efforts to shift away from exports in favor of domestic consumption as the driver of economic growth.
And any benefit devaluation might confer to China’s exporters would be more than offset by the increased cost of Chinese imports, especially in the two biggest product categories: semiconductors and oil. China already is grappling with record high food prices driven in part by a raging epidemic of African swine flu.
Devaluing the dollar would increase prices for American consumers in much the same way. As former Treasury secretary Larry Summers observed in an interview on CNBC, “no nation can devalue its way to prosperity.”
Currency devaluation is never a good thing. Nigerian economy has struggled for years because of just that. You may think you are helping your export by making it artificially cheaper since your currency is cheaper when in fact you are making lives harder for your local companies that took foreign loans in foreign currencies. Devaluation cannot save any nation without sound economic fundamentals. Nigeria is yet to learn lessons on that. So, I am curious as to why China is going that path; I agree with this summary from Fortune Newsletter.
As the Financial Times explains here, a weaker yuan might help boost Chinese exports a tad by making them cheaper in dollar terms. But the downsides of devaluation are that: it will encourage capital flight (a huge problem in China); put more pressure on Chinese property developers and other companies struggling to repay dollar-denominated debts; and undo Beijing’s efforts to shift away from exports in favor of domestic consumption as the driver of economic growth.
And any benefit devaluation might confer to China’s exporters would be more than offset by the increased cost of Chinese imports, especially in the two biggest product categories: semiconductors and oil. China already is grappling with record high food prices driven in part by a raging epidemic of African swine flu.
Devaluing the dollar would increase prices for American consumers in much the same way. As former Treasury secretary Larry Summers observed in an interview on CNBC, “no nation can devalue its way to prosperity.”