Chinese crisis may escalate into a third world currency war
After the collapse of Chinese financial markets, the yuan is no longer a stable support for the Asia. This could be a starting point for a new currency war, not only in region but also in the world Yegor Perelygin Head of Strategic Planning UniCredit Bank Over the past two weeks have shaken world markets almost unprecedented event. Referred to some experts "Third World currency war", they raised the curtain on our confusing the global financial system and triggered a mass market panic. The rapid fall in the Chinese stock exchange, a record rate of decline in oil prices and the whole a wave of devaluations destabilized the overall global picture. On Tuesday, August 25 the Shanghai Composite Index has fallen by 8.1% to 2,949.22, thereby increasing the total drop from August 19 to 22%. The capitalization of more than 700 Chinese listed companies fallen by more than 10%, pulling an index CSI (the fall of the most important Industrial index was 7.8%). China's economy was in free fall and I pulled him all. At the same time, world oil prices have fallen to $ 45 US per barrel. But the key question arising from the financial community and has not received a proper response - How bad is it this time? In short - everything is bad, but not hopeless. In fact, the situation unfolded on the world markets in the "Black Monday" 24 August is a combination of several factors influences, which are the foundation It was laid a very long time. And if you take into account the long-maturing "normalization" of the Chinese economy and the world oil prices, as well as congenital instability of the capitalist system (which is always in need of stabilization and balancing), the conclusions suggest themselves - nothing surprising happened, It came to an end just a few cycles simultaneously. However, a wave of panic and sales on world markets have made their "dirty work." But the situation is uncommon. And in order to better understand it, I propose to consider all painting in the context of global markets. Pacific Rim Traditionally, the Chinese yuan has been the foundation for stability in Asia and the Chinese authorities We applied the maximum number of efforts to strengthen the national currency. It done to protect borrowers of foreign currency to prevent capital outflows and assigning the yuan reserve status in the overall basket of the IMF. Now there is a real the risk of large-scale currency war in Asia, which could easily escalate into a world. The logic is that most countries want either to increase its competitiveness exports towards China on the world stage, and thus slow down the economic downturn, or to maintain the momentum of its exports to the Chinese market. The likelihood that China will continue to devalue its currency to the level of 7 yuan per 1 the US dollar is very high (the devaluation of a little more than 8% against the rate of 25 August). This week a lot of Chinese agencies and corporations have already started use this course in their financial models and calculations for the future. For countries such as Australia, South Korea, Taiwan, New Zealand, Japan, Malaysia, Thailand and Singapore, in which China holds a significant share in the overall structure exports, Chinese devaluation would be very dangerous external risk. Also China's devaluation of the questions the US Federal Reserve plans to review its interest rate and closing opportunities for US financial technology use a cheap dollar, attracted to the United States, in order to maximize earnings in China the market (what is called "carry trade"). North line In devaluation against the euro in Asia began to rapidly strengthen. For example, against major currencies of developed countries (against the US dollar, Swiss franc, British pound and Japanese yen), the euro exchange rate for August rose by 4% and above. It It explains the panic of investors with positions in Asian markets and stabilizing the effect of the program of "quantitative easing" of the ECB, which supports demand European assets. On Monday, the euro stood at $ 1.17, and on Tuesday morning It stood at $ 1,155. Such movements do not expect any analysts or markets, or regulators. Europe is an important export market for the United States. A strong and stable euro zone It promotes US exports of hardware, software, pharmaceuticals, agricultural products, aerospace technology and other goods and services. As the devaluation of the Chinese yuan, the euro, any devaluation dynamics calls into question The Fed plans to review its discount rate. Key US economic indicators (such as employment data in the US for July 2015) pushed the Fed to raise its discount rate. The unemployment rate in the US It is at its lowest point in seven years (5.3% unemployment). FROM return of income growth and the current inflation rate of 0.2%, the US economy ends his recovery and begin to shift to a sustainable growth. Unfortunately for the head of the Fed, Janet Yellen, the monetary policy of China and China attempts to expand the trend of slowing exports could trigger a new wave of "currency wars" in region and in the world. The risk of a potential global wave of devaluations raises questions the desirability of reviewing the interest rate the Fed, as the wrong time such a move could lead to the loss of competitiveness of US exports. Nevertheless, the probability of rate increase in September 2015 is estimated at "50 to 50 ". If the Fed does not raise interest rates in September, it is possible to almost one hundred percent a guarantee that he will do it in December 2015. All of this supports the likelihood the rapid strengthening of the US dollar by mid-2016. In the long run the next 2-3 weeks, we can expect the strong euro to $ 1,16-1,19 with followed by "normalization" to $ 1,06-1,08 up to the end of 2015. Also, it can be expected that mid-2016, while maintaining these trends will reach EUR 1,03-1,04 for US dollar, almost reaching parity. The normalization of the euro against the US dollar It is expected to start against the Fed's plans to strengthen its national currency and to move from "elasticity" to "discipline" in its monetary policy. At the same time as the Germany a key exporter within the euro area will seek to increase its position in the external markets, which could seriously contribute to a weak European currency. Eurasian abroad China is interested in a strong European currency. The European Union is the key trading partner of China, and if monetary union disintegrated, something new European currencies peripheral countries such as Greece and Portugal have failed instantly to a devaluation of the helix. Thus China would lose important market for their products. Therefore, China will continue to indirectly help the European Union certain conditions - where you have to buying bonds, participating in privatization public companies and entering a strategic investor in the corporation with extended technological base (telecoms, automotive, energy, and etc.). When the normalization of the euro against the US dollar prosyadet single European currency, which China I will not be very glad - but the commercial and financial position of China to strengthen the dollar The United States will be able to compensate for the loss. At the same time, China will continue to fill up strategic oil reserves. Falling world oil prices will encourage China to increase production and exports. Evidence of recent statements by the Iran, which is going to increase the production of all possible methods (China It is a major consumer of Iranian oil). At the same time, OPEC will not reduce production rates (will only build-up), to keep its traditional market share. US will quietly compete in the oil market and prices at $ 35-45 per barrel. Thus, China will do everything to make the yuan remained weak and oil - cheaper. Based on the above, the world price of oil could fall to $ 30-40 per barrel, for countries such as Russia, Angola, Nigeria, and Venezuela will result in a new crisis wave and devaluation (because for example in Russian exports account for 70% energy), as well as "mechanical" fiscal deficit. Conclusions: The new global realities and new realities in UKraine Low oil prices will stimulate demand and supply is already on record scale strategic reserves of raw materials. For example, the International energy Agency believes that the global oil demand in 2015 will grow more than doubled Compared with the previous year, and also forecasts the growth of the global daily consumption 1.6 billion barrels in 2016 (to 95.6 billion a day in 2016). All the causes that have to keep a very delicate balance on the world markets and hope for the resumption of economic growth in China. At the same time a lot of attention will be It focused on the ability of the US and the EU to ensure a sustainable safety net "Chinese economic miracle "and not succumb to the temptation to play" devaluation war "as it was in 1967-1987. In the event of failure of the normalization of the world catch up with the top ten economies and begin global economic recession. In the end, falling oil prices could lead to a recession in the Middle East and the decline of the Russian economy, the traditional trading partner for UKraine. It may be a serious risk, because the Middle East is a key export market, which consumes a total of up to 30% of UKrainian exports. Russia still It is the largest consumer of UKrainian machine-building products, even when full the collapse of trade relations and military aggression eastern neighbor. Slowing consumption capital goods in Russia in 2016 will also have a negative impact on UKrainian economy, if not carried out an effective diversification of the UKrainian exports. For UKraine, the falling price of oil - it is an opportunity to break the deadlock place, but it requires speed and efficiency. China, like other countries in Asia, UKraine will make a serious competition in export markets. Global problems and a lot of internal system issues (the war in the East, financial problems the Deposit Guarantee Fund), put the UKrainian economy in a precarious position. Most likely, it will not be able to withstand substantial external shocks. Expected strengthening of the US dollar and the loss of competitiveness of UKrainian exports traditional foreign markets significantly bind the local economy. National currency can once again start to devalue in October 2015, and if the government will delay the right countermeasures, the movement can be at the level of 400-450 basis points (from the current interbank rate). To avoid a new wave of devaluation, it is necessary: ​​(1) speed up key reforms under the "Extended Fund Facility" and the IMF continue to pursue the optimization of the budget; (2) to start to promote the modernization and diversification of UKrainian exports; (3) accelerate the process of recovery of the banking system and to resume lending / investment; (4) to diversify and optimize energy procurement, and complete reform "Naftogaz"; (5) to reduce the pressure on the country's budget by means of restructuring the external debt and open privatization of state enterprises bulky



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