Could China’s Yuan Devaluation Spark a New Financial Crisis?

23-Aug (Bloomberg) — Asia’s biggest economy is slowing, the Federal Reserve is about to kick off an interest rate tightening cycle, and China has just devalued its currency.

That chain of events back in 1994 eventually touched off a round of competitive currency devaluations that helped trigger the Asian financial crisis, featuring bank and corporate failures and recessions across much of the region.

Is the current market turmoil foreshadowing yet another region-wide bust? There are certainly parallels, but important differences as well. This time around, Asian economies have stronger current account balances, fiscal positions and foreign exchange reserves that provide a thicker buffer against turbulence.

Risks are building nonetheless as China’s surprise yuan policy U-turn on Aug. 11 sends ripples across the globe from Vietnam to Kazakhstan and threatens vulnerable emerging market economies from Brazil to Turkey. The global selloff deepened Monday, with U.S. index futures signaling more losses.

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