Chinese market turmoil and the renminbi’s fall to a four-year low against the US dollar risks the prospect of “perverse” currency wars, Mexico has warned.
Latin America’s second-biggest economy, which saw its currency tumble to a historic low of 17.72 pesos to the dollar on Thursday — on top of a slide of more than 14 per cent in 2015 — would be in the front line since the peso is the most widely traded emerging market currency and is often used by traders as a proxy.
“There is real concern that, in the face of the deceleration of the Chinese economy, the public policy response will be to start a round of competitive devaluations,” said Luis Videgaray, finance minister.
He called that prospect “frankly perverse” because copycat devaluations would leave everyone in the same position and would not really alter anything. Mexico’s peso floats freely, but the central bank has been auctioning dollars in recent months to shore up the currency.
Mexico had already been bracing itself for a volatile year before Chinese market turmoil got 2016 off to a painful start. Attempts by Chinese authorities to support share prices and the renminbi sparked global concern about their ability to manage a slowdown in the world’s second-largest economy.
Some observers attribute the renminbi’s slide to a four-year low against the dollar on Thursday as an attempt by Beijing to pursue competitive devaluations on behalf of its struggling exporters. However, the People’s Bank of China is considered unlikely to be intentionally stoking a currency war — last month alone, it sold an estimated $113bn in reserves to stabilise its depreciating currency.