Global currency wars are spiraling out of control

The devaluation of the Chinese yuan could trigger a global banking and debt crisis. China could be seriously damaged in this global currency war. The winner will be the US hedge funds, whose speculation could be the deal of the century.

The risk of a rapid devaluation of the yuan is real, the situation is very dangerous. In order to stabilize the exchange rate, the Chinese authorities have used their previously huge foreign exchange reserves of approximately US $ 4,000 billion over the past several months. Depending on the calculation method, about one fifth was used. If this continues further, burning foreign exchange reserves, it will have an impact on the global banking system.

In general, the picture is like this, since mid-2014, commodity prices have fallen. The currencies of the commodity producing countries began to fall. These items are traded in US dollars worldwide. Commodity currencies are falling because commodity prices are falling in dollars. A weaker exchange rate helps to soften the impact on current settlements and foreign exchange reserves. This also applies to the Russian ruble.

China, by contrast, is the world's largest importer of raw materials and has benefited enormously from falling commodity prices and reduced its import bills. In addition, it reduced the amount spent on imports of capital goods and luxury consumer goods. If export prices for manufacturing products fell 18 percent globally between mid-2014 and the end of 2015, this means that China has taken advantage of lower import costs everywhere. Conversely, it can keep its export prices relatively stable, at least according to the official data. The terms of trade thus work in China's favor, pushing up the trade surplus.

The Chinese authorities are outwardly in a comfortable position, but have no experience and work in the stock market, and they are doing everything wrong, while also being guided by bad advice from the IMF. This creates an extremely dangerous situation due to China's exchange rate policy in relation to capital flows. At the same time, China continues to increase exports, not consumption. It directs excess capacity to the global market and destroys prices, margins for other producers, and economic growth in the rest of the world.

Expectations of large hedge funds are very high due to the strong devaluation of the yuan. They are waiting for the right moment to take advantage of the miscalculations in China's monetary policy. It may take them a very short time to achieve a result, often within minutes of formidable hedging trades. The yuan's exchange rate will then be in free fall. Devaluation of the yuan and speculative transactions could lead to devastating consequences