China is playing a dangerous game with its currency, moves that could send the global economy into recession.
China's control-minded central bank allowed the biggest fall in the yuanin five months on Thursday, roiling global markets and sparking new fears about Asia's largest economy. Trading in the country's stock markets was suspended for the day after only 29 minutes.
Part of the fear driving those markets lower is that investors are struggling to understand the People's Bank of China's goals — with official statements pointing to an apparent policy struggle between conservative stability and liberalizing reform.
"They have a problem, and they don't like any of the options available to them," said Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management.
The problem is that most outside traders consider the yuan to be more than 10 percent overvalued against the U.S. dollar. Allowing the market to take the exchange rate to that value could potentially devastate China's domestic economy, but it's an expensive — and potentially impossible — task to fight the market now that the yuan is a global currency.