Unlike the Indian Rupee, Chinese Yuan will have no impact due to the ongoing Turkish Crisis. The weakening of Turkish lira will not impact the Chinese Yuan as much as it will hit the India Rupee or the South African Rand, as Beijing maintains stringent controls over capital outflows and also has ample foreign exchange reserves, according to experts talking to Global Times.
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Turkey’s economic troubles got worse after US President Donald Trump declared on Friday that taxes on Turkish steel and aluminium would be doubled. The Turkish lira depreciated by about 20% the same day and also impacted the global stock markets and emerging markets’ currencies.
The Indian Rupee slumped to a new low of 70.08 rupees against the US dollar. It depreciated further on Wednesday, although the Reserve Bank of India reportedly spent $23 billion to help sustain the foreign exchange market.
The Argentine Peso also hit an all-time low, trading at 30.36 per dollar as of press time on Wednesday. The country’s central bank on Monday also increased its key interest rate from 40% to 45%.
China’s Yuan traded lower on Wednesday, and its onshore price touched 6.9118 against the US dollar, the lowest since May 2017.
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The severe currency fluctuations have added market anxieties+ about whether there could be a domino effect from the Turkey situation that might hit currencies in developing markets, including India and China
“The market at first tends to over-react and investors quickly sold the currencies of emerging economies like India to stay away from possible losses. However, “Turkey is not an international economic hub. It is not even a member of the European Union. The country’s financial market also has minimal links with other nations, so the panic sentiment will calm down sooner or later, according to experts.
“A general concern for emerging economies has been a currency mismatch – when the dollar strengthens, assets in those countries are sold to gain short-term profits, ramping up devaluation stress on local currencies. However, China does not have this issue because of its stringent restrictions over capital flows and its sturdy economy.
The situation is not as good for India which has long experienced trade deficits and has had to draw foreign capital in the form of foreign debts which has made India more exposed to external market fluctuations.