Much of the reaction to China's recent decision to devalue the renminbi was excessive and irrational. Far from initiating a currency war, China was merely advancing its long-term goal of turning the renminbi into an international reserve currency.

SANTA BARBARA – Earlier this month, global financial markets nearly imploded. From East Asia to Western Europe, currencies swooned and equity prices tumbled – all because of China’s decision to allow a modest devaluation of its currency, the renminbi. China’s economy is on the brink of collapse, pessimists warned. A new era of currency wars is about to be unleashed, doomsayers chimed in. To call this an overreaction would be a gross understatement.