13 August 2015

Chinese Currency in Record Fall: Oh Dear!

Yesterday, this was the headline on the BBC News site.

I included other news items below the headline for you to be able to verify the date.

You know what the record fall was?

1.9 percent.

That's right, the record fall was less than 2 percent.

It is not uncommon to see such falls in daily dollar to euro fluctuations but this, for some reason, was different. 

I checked other news outlets. There were incredible claims about the sputtering of the Chinese economy or how this move was going to increase their exports and how they would flood the Western markets with cheaper goods.

Then I looked at a piece posted by BBC's Asia Business Correspondent Karishma Vaswani. This is what it said:
DBS Bank in its daily breakfast note said "A proper devaluation is 10 - 30%, and it has to stay the course for a year before exports start to show any change".
In other words, 2 percent is hardly a devaluation and it most certainly cannot be qualified as a record fall.

And for Chinese exports to be positively affected by a devaluation, the actual currency depreciation should have been exponentially higher and the effects would not be apparent for another 12 months.

Did we get that from the lead news item? No. It repeated the export claims like every other news outlet.

Moreover, if every 1 percent depreciation leads to a $40 billion capital outflow why would China go this route to boost its exports?

Why loose $80 billion in capital exodus for dubious gains in 12 months?

Clearly, there are other considerations than export boosting behind this decision. But almost all news outlets reported it with highly exaggerated statements and they all made the export boost claim.

There is more.

This is how USA Today reported the news.

As you can see, there is now a hint of a causal link between falling oil prices and Chinese devaluation.

The article does not even offer a correlation between these two occurrences let alone a causation but a clear suggestion is made in the headline.

Tell me how ordinary news consumers are supposed to make sense of the world in which we live.

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