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Before you totally freak out about China's currency devaluation ...

Published by Business Insider on Fri, 14 Aug 2015

The big story in global markets this week was China's stunning devaluation of its currency, the renminbi.Although we're talking about the world's second largest economy and while the 3% depreciation in any currency is massive for one week, it's important to take a step back and consider the move in the big scheme of things.As Business Insider's Mike Bird observed, China's yuan is the one major currency that hasn't fallen in value against the US dollar since the dollar bottomed in July 2011.And as Business Insider's David Scutt observed, this week's depreciation is minuscule compared to the massive appreciation we've seen in the past year, suggesting that "hysterics over the yuans devaluation may be slightly misplaced."Goldman Sachs' Michael Hinds, Max Layton, Jeffrey Currie and Amber Cai reiterated this message in a note to clients late Thursday."To date, 3% CNY devaluation is unlikely to have much impact on domestic growth or commodity demand fundamentals as the CNY remains 15% stronger on a trade-weighted basis versus a year ago," they said. "This strength also primarily reflects the upward trajectory of the US$ over this time period compared to most other EM trade partners (see Exhibit 1) over the same period."What happens next could have more significance."While People's Bank of China comments noted that the adjustment was intended to correct pent-up currency misalignment and dismissed the need to depreciate further to boost exports, our China economists expect that USDCNY is likely to move in a way that is consistent with a stable trade-weighted CNY in the near term," the Goldman analysts said. "As such, if further US$ appreciation materializes then misalignment pressures on USDCNY could return."For now, we may see some modest impacts in stocks heavily exposed to China. But as it stands, the current move in the currency is unlikely to have a major impact on the global economy, US economy, and US economic policy for that matter.SEE ALSO:Here's why China is weakening its currencyJoin the conversation about this storyNOW WATCH: How much sex you should be having in a healthy relationship
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