After China unexpectedly devalued its currency last week one City economist shrugged despairingly and said: ‘It’s August’. While it’s meant to be a time for heading for the beach or kicking back in the sunshine with the kids August has often witnessed the first cracks that presaged what later became profound shifts in the tectonic plates of the global economy — from the Russian debt default in 1998 to what Northern Rock boss Adam Applegarth called “the day the world changed,” when the first ripples of the credit crunch were felt in 2007; to August 2011 when ratings agency Standard and Poor’s sent shockwaves through financial markets by stripping America of its triple-AAA credit rating.
Taking the long view last week’s devaluation by China which left the yuan about 3% weaker against the dollar, was relatively modest — sterling had lost 16% of its value in 1967 when Harold Wilson sought to reassure the British public about the “pound in your pocket”.
But China’s decision represented the largest yuan depreciation for 20 years and the ripples may yet be felt thousands of miles away. So what difference will it make to the rest of the world?