Yuan and market forces: Declaratory and operational policy – BBH

By FXStreet Research Team at BBH, The Wall Street Journal is reporting that minutes of a meeting in China two months ago reveal that officials there have abandoned their commitment to give market forces greater sway in setting the yuan’s exchange rate.

Key Quotes

“Reportedly, in response to economists and banks request that officials stop resisting market pressure, one PBOC official explained that “the primary task is to maintain stability.”

The revelation here is not what it seems. It is not clear that the PBOC operationalized its declaratory policy in the first place. It is true that the yuan fell last August, but it was simply a two-day 3.8% move. The element of surprise and the uncertainty of policymakers’ intent spurred the anxiety.

At the time, and in hindsight, it appears that Chinese officials were trying to decouple the yuan a bit from the dollar to prepare for the FOMC rate hike which many thought was going take place in September 2015.

The WSJ claims that the exchange rate is “now back under tight government control.” We suspect this is not new and has been the case except for a couple of times when officials tolerated market forces that were pushing the …read more

Source:: FX Street