On Tuesday (11 August), the Chinese government loosened their control over the yuan by allowing a “one-time correction” of its value against the dollar. The government sets a reference rate daily and has previously based this value on a poll of market-makers. The government appears to be taking more of a “market-oriented” approach by considering other factors such as the closing value of the previous day, the foreign exchange market and rates of major currencies.
The value of the yuan subsequently dropped further on Wednesday and Thursday. This combined drop is the biggest since 1994.
There have been recent concerns that China’s economy may be slowing down and so the devaluation will allow them to export cheaper goods. Some view this as China attempting to wage a “currency war” but this is denied by a representative of the People’s Bank of China.
This video provides a synopsis of how the devaluation of the yuan will affect various countries (including South Africa).