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Chinese 100 yuan banknotes are seen in this picture illustration taken in Beijing in this July 11, 2013 file photo.JASON LEE/Reuters

Michael W. Klein is the William L. Clayton Professor of International Economic Policy at the Fletcher School, Tufts University. He served as chief economist in the Office of International Affairs at the U.S. Treasury from 2010 to 2011.

Tuesday's sudden, surprising move by the Chinese government to devalue the renminbi against the U.S. dollar was the biggest one-day decrease in the value of that currency against the greenback in more than 20 years. This policy, extended in a second drop Wednesday, reflects concerns in Beijing about the recent lukewarm performance of the Chinese economy. It is an effort to spur exports, an important source of China's economic growth, in the face of weaker demand in the rest of the world and weaker demand in China itself, as the value of its stock market has plunged.

This policy is unlikely to have a big impact in China any time soon – which means that this move may prove to be the first of several renminbi devaluations. Renminbi devaluations in the future, like this week's, will lower the value of other currencies against the U.S. dollar, offsetting the desired effect for China. A falling renminbi could also cause headwinds that slow growth in other countries; but this is less of a beggar-thy-neighbour policy than a reflection of how adjustments come about when economic performances diverge across countries.

A country's exchange rate is one of its most important prices, translating the local cost of its goods into prices in foreign markets. But a country does not have just one exchange rate, but a wide range of bilateral rates. The foreign-exchange market response to the Chinese devaluation against the U.S. dollar was an immediate depreciation of other currencies against the dollar as well, including the South Korean won, the Australian dollar and the Canadian dollar.

This means there was a much smaller change in the value of the renminbi against these currencies than against the U.S. dollar. In particular, the recent decline in the value of the Canadian dollar against the U.S. dollar, along with a further plunge in its value in the wake of this week's renminbi devaluation, means the remnimbi is still stronger against the loonie now than it was, on average, in July.

These offsetting movements in cross rates are not the only reason the renminbi devaluation is unlikely to provide a quick turnaround for the Chinese economy. The effects of a fall in a country's exchange-rate movements only fully feed through to spurring production over a year or more. International trade contracts are written well in advance of the actual delivery of goods. Today's devaluation could affect orders delivered next year, but that is unlikely to quickly counter current sources of weakness in the Chinese economy.

A slow response to these devaluations could mean that authorities reach for another tug at the policy lever before too long. If this happens, or even if it is just considered a likely possibility, the increasing weakness in the renminbi would reduce dollar returns in investments in China, scaring off investors already leery of the recent weak economic performance of that country.

While the renminbi devaluation represents a policy move by the government, it should also be seen as a reflection of the natural response of the exchange rate to economic weakness. Currencies tend to weaken when a country's economy wanes. This serves as a natural shock absorber, offsetting the downturn by making a country's exports more competitive and bolstering the sales of domestic goods that are competing with imports.

The renminbi devaluation is worrisome, not because it represents an unwelcome move by the Chinese government, rather because it reflects a weakness in the world's second-largest economy at a time when the world economy itself is showing few signs of strength.

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