The recent drop in the exchange rate between the Chinese yuan (RMB) and U.S. dollar, the so-called "black Monday" on China's stock market and successive steep fall of the primary commodity market allowed much of the world to accuse China of launching a monetary war of competitive currency depreciation.
Besides, the drop of interest rate and reserve ratio are considered as a pressure factor leading to possible further RMB depreciation.
However, in the offshore market, the forward exchange rate of RMB had been showing status of depreciation a long time ago. In addition, in the year prior to the RMB exchange rate adjustment, many currencies of emerging markets, the euro and Japanese yen suffered depreciation. The euro depreciated by 18 percent, Japanese yen 18 percent, English pound 9 percent, Australian dollar 23 percent, and Russian ruble 40 percent.
Compared with them, the RMB depreciation has been very mild, and can never be seen as a symptom of a "currency war."
Looking back, the great depreciation of other currencies against the U.S. dollar is actually an inevitable result of the quantitative easing policy implemented by Western central banks in 2009-2012. This was deemed a "currency war" then; current events are really a time bomb set by Western central banks a few years ago.
We can see that the basic economy does not support any successive big drop of RMB exchange rate. Chinese decision makers have no motive for engaging in any competitive currency depreciation. And RMB should be and will surely be stable because China's economic growth rate is still much higher than other countries.
China still maintains a surplus in its commodity trade and current account balance, and the import of direct foreign investment is still large. Its financial revenue and expenditures and debts are in a healthy state among all the economic powers in the world.
