|5 WAYS THE COLLAPSING YUAN COULD AFFECT YOUR MONEY|
Aruba, March 24, 2014 - When there’s big foreign exchange news out of China, the world’s No. 2 economy, the effects can be felt around the globe. We’ve gotten exactly that this week, with the Chinese yuan hitting a more-than-one-year low against the U.S. dollar. Analysts have said the effects are limited for now, but you could end up seeing lower prices for electronic gadgets and other items — especially if the yuan continues to head south.
On the other hand, big name U.S. companies such as Boeing that rely on China for sales could face turbulence. A falling Yuan could also put an end to a trading strategy that had been going gangbusters. And don’t forget Washington’s perennial complaints about China’s currency manipulation. Read on for a look five ways the sliding Yuan could affect your money.
A significantly weakened Yuan against the dollar could mean Americans will get cheaper laptops, T-shirts or deals on other items like flights to China. Computer maker Lenovo is one company whose goods could sell at lower prices, said Yung Trang, president of TechBargains.com, a San Francisco-based company that aggregates electronic deals. Lenovo has both manufacturing and most of its management team in China. “Companies with most cost concentration in China will stand to benefit most,” Trang said.
Such price drops are still a big if, said Fred Bergsten, senior fellow and founding director of the Peterson Institute for International Economics in Washington, D.C. “In most cases it requires a few months for the producers to take it as a new lasting factor significant enough to factor into their pricing,” he said. “For any notable impact, it’s got to be bigger and last longer.”
For U.S. tourists in China, there could some minor effect in terms of hotel prices, food and flights, said Stanley Kwong, managing director of China Business Programs at the School of Management of University of San Francisco. “But it won’t be a major effect,” he said. “Most people won’t notice airfare is $1,200 instead of $1,220.”
The Yuan dropped to its lowest level against the dollar in 13 months on Thursday -- and that’s important. To get a sense of why, it helps to look at the history of how the Yuan has traded. The band in which the dollar can trade against the Yuan has been gradually widening since July 2005, when the People’s Bank of China stopped pegging the Yuan’s value to a fixed level against the U.S. dollar.