2015 China Yuan Devaluation

On August 11, 2015, the People's Bank of China cut the daily reference rate for the yuan by 1.9%, the largest one-day move since the 1994 dual-track reform. Over the following week, the yuan weakened another 3% as the PBoC introduced a more market-driven fixing mechanism. Global markets read the move as a signal of Chinese economic weakness and potential currency war. The S&P 500 fell 11% over four trading days in late August. VIX spiked to 53. Commodity currencies (AUD, CAD) plunged. Emerging market equities crashed. The move coincided with concerns about Chinese growth, a crash in Chinese equities (Shanghai Composite down 40% from its June peak), and capital outflows from China approaching $1 trillion over the subsequent year. The episode reset expectations about China's role in global markets. Chinese demand for commodities had underpinned the commodity supercycle. Chinese capital outflows put downward pressure on global asset prices. The PBoC intervention, burning through $400B of reserves to defend the yuan, demonstrated that Chinese monetary sovereignty had limits. The 2015 pattern repeated with variations in 2018 and 2024.