There was a time when young beggars in the countryside outside Jakarta shunned dollars in favour of Japanese yen. Potential customers in Indonesia, meanwhile, shunned Japanese imports because they were so expensive. If your prosperity depends on finding foreign markets for its products, a strong currency is a curse.
Last week China became the latest country to counter that curse with the charm of competitive devaluation. Beijing tweaked the formula used each day to fix the value of the renminbi against other currencies, triggering the biggest one-day currency move since the mid-1990s. Some analysts said other countries, particularly in Asia, may be forced to follow suit — perhaps setting up a cascade of tit-for-tat devaluations.
Yet China is a latecomer to the currency skirmishes. Before 2005, the value of the renminbi was fixed at a constant rate against the dollar. Since that peg was relaxed, the Chinese redback had risen 25 per cent against the greenback. (It has risen still more steeply against a trade-weighted basket of currencies, and by about 50 per cent against the Japanese yen.) Even the International Monetary Fund no longer finds the currency undervalued.