A devaluation of the Chinese currency by 20 percent could have a devastating effect, it would produce a currency collapse in Asia. America would be flooded with cheap products, so, the local manufacturing would be severely affected. The financial markets would come down and a huge amount of money in stocks would evaporate in a few days.
But there is more pain, china could withdraw billions from The United States creating a new crisis. America has a huge trade deficit, so, this would increase financial problems. A brutal devaluation of the American currency could take place while the price of gold would grow exponentially.
Death of the US dollar?
If the American currency falls drastically, many countries would change their economic and financial policies. Today, many nations have their international reserves mainly in US dollars, but a big change could take place if a serious crisis happens.
Many countries would store their international reserves mainly in gold, so, the era of the US dollar as a way of protection and storage would be over. The US dollar would keep existing, but its use would be much more limited. America would lose relevance, and China could fill part of that vacuum.
Consequences
America would see a drastic reduction of its imports because there would be no way to pay for this, its political power would be affected too.
Many national currencies from underdeveloped nations would be revitalized, and a lot of outsourcing companies would be affected, and immigration would suffer big changes. The price of oil could fall drastically in a world that is hit by a financial crisis. I also believe that a new real estate crisis could take place in the United States, producing a long recession.
Many traditional US companies could go bankrupt and there would be no money to rescue them.
China
This country could emerge as the new winner, its huge population and levels of production would soften the effects of the crisis. We also have to remember that China is still an authoritarian government, so, riots and violence can be controlled more easily.
The most populated nation in the world would gain more political and financial power, its currency would be much more used.
The Asian country would rescue many poor countries to gain their respect and political favors. Our planet has a linked economy, it creates a lot of opportunities, but it also makes the economies more vulnerable. This is the moment to weigh carefully our policy with North Korea because the most powerful reaction won't come from Pyongyang, it will come from Beijing.
