United States

Sea of red


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Slowing economic growth in China, the world’s second largest economy, was a main driver behind the severe downturn experienced in global markets in August. Looking to generate growth, the People’s Bank of China (PBOC) took action by once again cutting interest rates. Similarly, the PBOC also further lowered the amounts that banks are required to hold in reserves, effectively putting more money into the economic system.

The real carnage came in August when China sharply devalued its currency, raising concerns that issues in China may be worse than reported. Talks of currency wars continued among nations as it appeared the Chinese currency devaluation was done to boost Chinese exports at the expense of all other nations. All of this comes at an interesting time for China as it tries to move from a production economy to more of a consumption economy; when it is conflicted between having free markets but are still viewed as having opaque markets; when it wants the IMF to include its currency in the basket of reserve currencies (dollar, pound, euro, yen) but the PBOC can still provide government intervention.

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