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Finance as a weapon. What will devaluation of the yuan

The people’s Bank of China threatened to devalue the national currency. If this happens, affected the markets of all countries: the collapse of the indexes threatens Asia, USA, Africa and Russia. The ruble may drop after the yuan.

All exports to the USA is $150 billion, and the toll is $200 billion According to the logic Rickards, head of China XI Jinping cannot cede to the United States of pride. Output it has only one: to devalue the yuan by 25%. It will make import more expensive, but will help to maintain the growth rate of the Chinese economy.

Where it leads

When in 2015 China tried to devalue the yuan, the us market fell more than 10%. This time we can expect similar effects — but together with the United States not be good for most Asian economies. We are talking about those who tried to replace China as the factory of the world.

Robert Subbaraman, economist for emerging markets at investment Bank Nomura, made the list of “weak links”: South Africa, Hong Kong, Philippines, Chile and Mexico. At the forefront of South Africa. And like Turkey, South African country has a large current account deficit.

Even if the US and China in a trade war will disperse without the global shocks, a steady deterioration in the external environment endanger a developing economy .

When is significantly more expensive loans, the problem start in the Asian countries: South Korea, Taiwan, Singapore, Malaysia and China, says Subbaraman. Many States with crises of 1998 and 2008 were well prepared. But few can predict what will happen with corporate debt debt, denominated in dollars, as many borrowers have no income in U.S. currency.

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What will happen to the ruble and Russia

At some point, investors may panic. In 2013 only on the rumor that the fed is going to curtail its quantitative easing program, happened the so-called Taper Tantrum — emerging markets were withdrawn more than $1 trillion, writes The New York Times. If something similar happens again, the outflow of capital from Russia will intensify — but the investors and without having to sell Federal loan bonds and Russian banks ‘ assets.

Russia is not protected from shocks. First and foremost, the country is heavily dependent on raw material prices — and this figure is usually inversely proportional to the dollar. Now the dollar is strong, which means that the time of cheap raw materials.

Reduction of prices on oil, gas and other commodities are capable in the next six months to a year to drive the Russian economy into recession and derail the ruble, far more effectively than a ban on transactions with the public debt and sanctions against state-owned banks.

The crisis has already begun

The Turkish economic crisis has highlighted the problems of developing countries. South African Rand, which was not the center of attention, has lost a little less than the lyre: 8.1% vs 10.1 percent. Significantly, more than 3%, dipped Mexican peso, Brazilian real and Russian ruble.

Regulators in other countries are shown that do not really believe in the stability of the financial systems of their countries: in Argentina and Indonesia, preemptively, without a special reason raised the stakes. This is one of the most effective methods to stop a falling currency. Mass exchange local money for more stable money unit and leads to the collapse of the currency. The rate increase smooths out this effect.

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Turkey was the weakest link among the developing countries. The main problem: it has a significant current account deficit. This means that the country buys from the outside world much more than it sells. The current account comprises the difference between exports and imports of physical goods, as well as the difference between incoming and outgoing flows of less tangible values, services, investment income, transfers. As a result, the country has a lot to do. Long so can not continue.

The list is long wavering economies: Mexico, Brazil, South Africa, Argentina, Indonesia, Hong Kong, India. Even the Chinese problems have become noticeable these days.

Analysts talked about the fact that investors will try to capitalize on the drop in prices. High rates of intensively draw investors ‘ funds from emerging markets. This means that the interest rates to attract lenders, that is those who are willing to buy government bonds and bonds of corporations that will grow. This may increase the debt of developing countries — and in fact they are already highly leveraged.

The economy of the above countries will slow down, currency to depreciate and the debts increase. Due to the trade wars of Donald trump in the world an era when Finance started to be used as a weapon.

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