China weakened the renminbi fixing by 1.86 per cent overnight, an unexpected move followed by the biggest one-day change in the value of the renminbi since the country abandoned its dollar peg for a managed trading band.
There are two schools of thought on this: Either balance of payment problems are forcing China’s hand, or the move is just another step in the slow and benign process of capital liberalisation.
On the first, well hey, they would depreciate in the current environment wouldn’t they? Exports are weak, the economy is sputtering, and the stock market can’t stay up without the state introducing a ban on it going down.
Move to a free-floating currency system? Meh. This is just another desperate devaluation story in the style of Nigeria, Russia before them and even peg busting Saudi Arabia on the back of a hard-currency drought in the offshore FX market. (FT Alphaville has predicted this for like ages, yeah?). Read more