{"id":1874,"date":"2015-08-13T14:45:38","date_gmt":"2015-08-13T13:45:38","guid":{"rendered":"http:\/\/blogg.lnu.se\/china-research\/?p=1874"},"modified":"2015-08-13T14:45:38","modified_gmt":"2015-08-13T13:45:38","slug":"whats-so-strange-about-chinese-exchange-rate-policy","status":"publish","type":"post","link":"https:\/\/blogg.lnu.se\/china-research\/?p=1874","title":{"rendered":"What\u2019s so Strange about Chinese Exchange Rate Policy?"},"content":{"rendered":"

Chinese mini devaluations in the past few days have caused a lot of reactions on global financial markets. I don\u2019t regard these steps as particularly dramatic \u2013 particularly not after all developments during the past year or so.<\/p>\n

1. We have known for quite a while that China has been affected by weakening exports. And at the same time the U.S. dollar has been strengthening \u2013 a currency the Chinese renminbi (or yuan) has been and still is closely linked to (without knowing the official weights of the Chinese currency peg).<\/p>\n

2. We have known \u2013 and seen by action – for quite a while that China wants to give its currency more weight on international markets (see my blog www.chinaresearch.se). For this reason, it is easy to understand that China wants to have some more market aspects for its future currency fixing.<\/p>\n

3. We also know that China has launched the view on more market-oriented fx rates already a couple of times before. Let\u2019s wait and see to what extent Chinese authorities will stick to this old and new view in the future.<\/p>\n

4. We also know that China wants its currency to be included in the composition of the SDR by the end of this year (which I questioned as an urgent step in a previous China blog). However, this calls for more market orientation.<\/p>\n

5. We also know \u2013 or should know – that strategic<\/em> exchange rate policy decisions are made by the small group (7 people) of the Standing Committee of the Politburo, not by the People\u2019s Bank of China (PBoC). This is China\u2019s most important political decision forum. The recent devaluations probably have a strategic and political character determined by the Standing Committee. This assumption should underline the relevance of the devaluation steps.<\/p>\n

6. We should know \u2013 or at least learn by now \u2013 that the recent days have shown that China\u2019s future financial deregulation steps will become increasingly difficult the more the currency and the capital account will be deregulated. I have written quite a lot of lines on this issue in the past years. Some of them you can find in my China blog at Linnaeus University chinaresearch.se<\/em><\/p>\n

7. We should know and understand that economic analysis of China is very difficult. Newcomers may feel this is not the case. But it is! I am quite sure that future challenges \u2013 may be a couple of years from now \u2013 will be much larger than the current one. More on this can be read in my article \u201cOtillr\u00e4cklig analys av Kina\u201d in Dagens Industri from July 31.<\/p>\n

 
\n <\/p>\n

\"\"<\/p>\n

Hubert Fromlet<\/em><\/strong>
\n<\/em>Senior Professor of International Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n

 <\/p>\n

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\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Chinese mini devaluations in the past few days have caused a lot of reactions on global financial markets. I don\u2019t regard these steps as particularly dramatic \u2013 particularly not after all developments during the past year or so. 1. We have known for quite a while that China has been affected by weakening exports. 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