China cut its daily reference rate by 1.9 percent Tuesday, the biggest devaluation of the currency in the last 20 years. The People’s Bank said the move was to revive faltering exports.
As soon as the announcement was made, the yuan exchange rate tumbled against the U.S. dollar. The Chinese currency was trading at 6.33 to the dollar as of 8:15 a.m. GMT (4:15 a.m. EDT) Tuesday, Russia Today reported.
The Washington Post reported China’s decision surprised that world and is likely to boost its exports, stimulating economic growth. The decision may worry U.S. politicians, who have long complained China deliberately keeps its currency low to boost domestic industries.
The Treasury Department hailed China's efforts in April to allow the yuan to rise. However, the currency was still considered “significantly undervalued.”
The decision has suggested China is now giving more importance to the government’s control over the financial system. “The one-off devaluation of the fix and allowing more market-based determination takes us into a new currency regime,” Khoon Goh of Australia & New Zealand Banking Group Ltd. told Bloomberg, “It looks like this is the end of the fixing as we know it.”
The devaluation may complicate China’s effort to establish the yuan as the leading currency in the world. The Chinese central bank said the goal was not only to boost growth and exports, but rather a one-time event to keep exchange rates in accord with free market practices.