Chinese Yuan Losing Value

China has been one of the largest economies in the world for many years, however its place near the top has been impacted in recent times because of its currency. The yuan, the national currency for China, has been depreciating in value and will continue to do so into the first quarter of 2017. This decline has been the biggest for the Chinese yuan in the last two decades. For the past 14 consecutive months, money has been leaving China, causing a slump in the nation’s central banks. About 1.1 trillion dollars of foreign currency has vacated the country since China devalued the yuan in 2015.

The devaluation of the yuan affects many of the other currencies worldwide. Australia, Malaysia and South Korea are a few of the countries with currencies which are projected to see drops of 5-7 percent in the upcoming months. One of China’s goals with devaluation is to help establish their currency as the fifth international reserve currency by the International Monetary Fund. This will happen when the country demonstrates their currency is “freely usable”; however, the IMF has not agreed with statement since 2010. If the currency were to be approved as one of the international reserve currencies, it would begin to be carried in central banks, be available to price other goods, and stabilize the yuan's value. It also has been speculated that it will help cut borrowing costs for Chinese exporters. The devaluing of the yuan could lead the country into a recession based on the international exchange rates, and this threat could be detrimental to other countries, such as the United States. Even though the yuan has been on a decline, current projections predict that currency will stabilize in 2017.