The Real Reason China Wants Yuan in IMF's Basket

A mountain peak is easier to see when viewed from a valley than from the summit. Similarly, it may be easier to understand the changes in China's currency regime if we take a step back and try to look at the big picture. To find our path, we need to clear away some undergrowth that is distracting us from rigorous analysis.

With China's economy slowing and exports weakening, devaluation of its currency could be a way to restore economic vigor. Many accounts in the Western financial press have tried placing the depreciation of the yuan in this context, but they are mistaken.