Will the devaluation of the Chinese yuan cause another Asian economic crisis?
I don’t think so! The Asian crisis was not caused because of any devaluation but because of certain economic weaknesses in various Southeast Asian countries. No doubt, the crisis was triggered off when Thailand devalued its baht and South Korea devalued its wang. The devaluation led to many banks calling in their short-term loans since they feared a loss in income. It was the run on short-term loans that caused the financial crisis, because the Southeast and East Asian countries had too much of short-term indebtedness. Too many of the loans taken by the Southeast and East Asian countries were of the short-term variety, rather than of the medium- or long-term types. China does not have such a huge short-term indebtedness. It has a much larger share of medium to long-term loans and hence, even if the yuan is devalued and the banks call in their loans, the outflows will be much less than what happened in 1997. And the Southeast and East Asian countries got out of the economic crisis by co
