EFFECTS OF CURRENCY DEVALUATION ON DEVELOPING NATIONS: GLOBAL IMPACT OF YUAN DEVALUATION

Abstract

Currency devaluation, the deliberate reduction in a currency's value relative to others, can significantly impact developing nations. When a major currency like the Chinese yuan is devalued, it not only affects China's economy but also triggers global ripple effects, particularly for developing countries. A devalued currency makes exports cheaper and more competitive globally, which can harm developing nations by making their exports less competitive. Additionally, these nations often rely on imports for essential goods like oil, and currency devaluation can raise import costs, fueling inflation. For countries with foreign-currency debt, devaluation complicates debt repayment by increasing the local currency cost. Moreover, a weaker yuan can shift global investment flows toward China, potentially diverting capital from developing markets and limiting their growth. Thus, the devaluation of a major currency like the yuan can have far-reaching consequences on trade, inflation, debt, and investment in developing economies.