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Fears of a currency war as China devalues Yuan by 4%

By Roger Baird

China has rattled the financial markets by cutting the value of its currency - called the yuan or the renminbi - by almost 4% in two days.

The move ignited fears that the world's second largest economy may start a global currency war, which would see nations trying to protect their exports by artificially managing their currencies.

The move saw the FTSE 100 fall by more than 100 points, with Germany's Dax and France's Cac 40 each down by more than 2%.

China first cut the value of the yuan on Tuesday, by 1.9%. That marked the biggest one-day drop in the currency's valuation since January 1994, and saw New York's Dow Jones Industrial Average fall by more than 200 points. It followed this up with a second 1.6% cut on Wednesday.

Economists say the move to cut the value of the yuan is designed to make its goods, the costs of which have been rising, cheaper across world markets. Official Chinese data showed that its exports tumbled by 8.3% year-on-year, much worse than expected. The economy is expected to grow by less than 7% this year.

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