It’s a problem that has been talked about before — inside China it’s what the yuan does against the dollar that seems to matter. Which is awkward because China is quite keen on people concentrating on what it does versus a basket of currencies.
The potential consequence of that USD fixation is that if the $/CNY rate goes higher then there is a risk that capital flight picks back up again in tandem with expectations of further depreciation, no matter what the RMB is doing against that currency basket.
In the words of Goldman’s Robin Brooks and team:
China is pursuing a shift in its currency management, towards a trade-weighted exchange rate and away from the bilateral exchange rate versus the Dollar. That shift makes sense conceptually, given that monetary policy normalization in the US is likely to push the Dollar up, so that some weakening of the RMB versus the greenback can certainly be justified given China’s cyclical position. But the shift to a trade-weighted exchange rate has a weak link, which is that the main signal for households and businesses within China remains the bilateral exchange rate versus the Dollar.