How China Can Prevent a Currency War

USA crude gained 2.1 percent at $36.39 after earlier falling as low as $34.53.

We believe that equity markets are the best benchmark for the performance of China's economy, or at least investors' sentiment about China. Lucidus Capital Partners has liquidated its entire portfolio and plans to return the $900 million it has under management to investors next month, according to a media report. Australian shares .AXJO dropped 1.5 percent. Britain's FTSE 100 was down 0.2 percent and Germany's DAX was down 1.1 percent, also struggling under the weight of a rebound in the euro. Japan's Nikkei fell 1.8 percent.

Base metal prices edged up on the back of encouraging Chinese industrial output data released over the weekend.

USA stock futures pointed to a flat open on Wall Street. Both indices are in the red year-to-date, on track for their first annual decline since 2008.

China late on Friday launched a trade-weighted yuan exchange rate index, saying it was meant to discourage investors from exclusively tracking the currency's fluctuations against the greenback. Although China has said that it has not allowed the yuan to slide to boost the economy or increase exports, it seems that the market is taking these developments as desperate actions from China's government to help the economy, raising concerns among investors that the country's slowdown might worsen. First, the relentless flow of offhand economic data added fuel to hopes for further stimulus measures.

China's yuan weakened against the dollar on Tuesday after the central bank set the midpoint at its lowest level in more than four years for the second day, and traders anticipated the currency will fall further.

The rand rallied 5 per cent on Monday, its biggest rise in seven years, after the widely-respected Gordhan was reappointed.

At the end of WWII, the US and British governments persuaded the participants of the Breton Woods Agreement to accept the USA dollar as the world's worldwide reserve currency and to simultaneously create the World Bank and the IMF. The euro was down a third of one per cent at $1.0950 and the dollar was up a third of one per cent against the yen at 121.20 yen. And while Washington opposed the project, Beijing managed to line up the support of 57 countries, including such key US allies as Britain, Germany, Australia, and South Korea. The 10-year yield was up 3 basis points at 2.17 per cent and the 2-year yield was up 2 basis points at 0.915 per cent.

The US Federal Reserve will likely react to the yuan's internationalisation by raising domestic interest rates, which will raise the value of the dollar over time.

Some repositioning and flight from risk late last week upset high-yield bond markets, and emerging markets and commodity exporters remain vulnerable. Having been stalled by US influence for many years, the long-awaited International Monetary Fund decision acknowledges the massive transfer of financial power from the old West to the new East. The move heralds an era of potentially great change with global implications for politics, economics and investments. "And this might just be a foretaste of what's to come if the market does not like what the Fed has to say on Wednesday", said Steve Barrow, head of G10 strategy at Standard Bank in London.