Economics: International Currency Exposures

Devaluation of China’s currency will lead to higher aggregate demand and exports, leading to higher rates of economic growth. The higher level of exports is supposed to lead to an improvement in the current account deficit. As mentioned earlier, the exports will also become cheaper and more competitive for foreign buyers. This will boost domestic demand and may lead to the creation of jobs in the export sector. If China loses competitiveness in a fixed exchange rate, devaluation is likely to be beneficial in solving the decline in competitiveness.