Just a couple of years back, the Yuan was officially admitted into the IMF SDR basket. That effectively means that the Chinese Yuan also becomes a hard currency like the Dollar, Pound, Euro and the Yen. In fact, the Yuan already has a weightage in the IMF SDR basket that is higher than the Yen and the Pound. A lot of trade that China is having with countries in Southeast Asia and Central Asia is already denominated in Yuan not in dollars. But above all there is a very important currency devaluation angle that needs to be understood.

Back in August 2015, we saw the first instance of a devaluation of the Yuan, which created panic in emerging market across Asia and Latin America. As the Yuan devalued, other economies were forced to devalue their currencies to maintain their export competitiveness. There is another angle to it. China could use devaluation to export its way out of trouble. Already China has massive excess capacity in steel, cement, capital goods and photovoltaic cells. It will surely try to use a cheaper Yuan as leverage to sell products cheaper in other countries. Such cases of dumping are already visible today. In fact, Indian companies are almost being priced out due to cheaper imports from China in sectors like steel, electrical equipment, radial tyres etc.