Business News of Tue, 18 Aug 201516

Devaluation of Chinese Yuan to worsen cedi's plight

Some economists are predicting the cedi will further decline against major foreign currencies following the recent devaluation of the Chinese currency, the Yuan.

China’s central bank last week devalued the Yuan; central to the move was a bid to have the yuan accepted by the International Monetary Fund into its basket of reserve currencies, placing the yuan on par with the dollar, euro, yen and British pound, and boosting China’s global stature.

The devaluation is also to make its exports more competitive following the slowdown in its economic growth.

But some economists fear the move will hurt the cedi’s fortunes.

One of such is economist and senior lecturer at the University of Ghana, Dr. Ebo Turkson, who tells Citi Business News the demand for cheaper imports from China will contribute to the depreciation of the cedi.

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“The devaluation of the Chinese currency is expected to boost their export because it makes their exports cheaper; so for us as a country its makes our imports from China cheaper.

Depending on the sought of demand we have for Chinese goods in Ghana, it could increase the demand for those Chinese goods and that will also have an impact on our currency because this is going to divert trade from other countries to China, which will increase the demand for the Chinese currency in the country; especially those who will increase their imports from China because the goods are going to be cheaper,” he warned.

"So for us, we are about to see an increase in Chinese products which is going to flood the market," Dr Turkson intimated.

Dr. Ebo Turkson further argued that the devaluation is likely to see business operators or importers move away from markets like the US and EU to China as goods from China would be cheaper than other markets.

“It will all depend on how Ghana will respond to the cheaper prices to those goods from China and if there is an increase in demand for foreign currency and normally if the Chinese currency is not in the system, it means importers will demand more dollars and, therefore, have an increase, especially the dollars, but if they have the Chinese currency then they will not be needing the dollars.”

Source: citifmonline

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