Aug
19

Shanghai Slowdown

shanghaiWhile many central banks have reduced the value of their currencies by lowering interest rates, the recently undertaken Chinese devaluation is different. When interest rates are lowered, it boosts the local economy by stimulating investment. The better performing economy then boosts demand for imports while the simultaneously weaker currency hurts imports. What China did simply reduces imports but doesn’t appreciably strengthen its economy. Thus, it unambiguously weakens its trading partners.

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