Why China's yuan may be set for 15% devaluation

China is mulling a 15-20 percent devaluation of its currency by the end of 2016 in a move that could spark a crisis in Asian markets, according to research firm IDEAglobal.

It cited an interview it had conducted with a "reliably-informed Asian source" in a release published late on Tuesday.

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China, the world's second-largest economy after the U.S., devalued its currency last month in a bid to help exporters. The country is grappling with a softening economy and wild swings in the stock market.

"Having achieved a 3 percent move in a few weeks, they would not want to stop here. Their ultimate target is probably a 15 to 20 percent minimum move in the trade-weighted index," IDEAglobal cited the source as saying in an interview.

The yuan was trading at about 6.3708 per dollar on Wednesday, having weakened to four year-low around 6.45 after last month's surprise devaluation.

According to the source, the push for a weaker yuan has to be seen in the context of sharp falls in other Asian currencies such as the Japanese yen that have given Japanese exporters a competitive edge.

The Japanese yen has shed more than 50 percent of its value against the dollar in the past three years against a backdrop of aggressive monetary stimulus from the Bank of Japan.

China's surprise yuan devaluation last month meanwhile sparked fresh concerns about a global "currency war" – whereby countries devalue their currency in a tit-for-tat scrabble to gain a competitive edge -- and unfair protection of exporters by Beijing.

IDEAglobal published a question and answer session with its source, who said Beijing was keen on another 6 percent fall in the yuan from current levels by year-end and a further 10 percent next year.

"Engineering a devaluation of this magnitude will not be easy, especially given market chaos," the source said. "However, the PBOC has the mechanism to influence the daily fix with covert interventions by networked players to achieve a creeping devaluation and maintain the appearance of it being "market-led"."

If the dollar continues on its uptrend, the U.S. currency would take most of the adjustment in the yuan, the source added.

Asked whether a further currency move by Beijing would trigger capital flight with significant repercussions for Asian markets, the source said: "It is realistic to expect a crisis in Asian foreign exchange and asset markets of some size."

"This will emerge as the market starts to appreciate the real motivations and scale of ambitions on the Renminbi adjustment."