Stock Market Crash around the World : Blame China

Here are two things that China's government wants very badly: first, for its economy to remain on an even keel, keeping growth and employment high. Second, for its currency, the renminbi, to become a pre-eminent global currency that helps promote the country's diplomatic goals and solidify the country's centrality to the global economy.Frequently those goals are in conflict. But Tuesday, it found a way to advance both at once.

 

That is how to make sense of some blockbuster news out of Beijing that the country will adjust how it manages the renminbi to make the currency's value respond more closely to market forces.

 

The immediate result was a de facto devaluation, with the Chinese currency falling 1.8 per cent versus the dollar and 2.2 per cent versus the euro Tuesday. Those are big moves for the renminbi, considering that the government had a policy of maintaining a strict trading band - enforced with both legal restrictions on the transfer of capital and the government's trillions in reserves. Usually, the renminbi will move only a few hundredths of a per cent against the dollar in a given day; the largest move this year was 0.16 per cent.

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