The renminbi used to shake the world. The biggest global markets scare of the past six years came after China allowed the Rmb to devalue very sharply in August 2015. After that, China’s currency became a big issue in the US election, even if the administration has not prioritised it in office so far. The latest development is different. It has risen very fast. And this time, beyond the world of those most directly involved in the Chinese foreign exchange markets, it has barely attracted comment.
There are various reasons for this. The first is a result of the furore of two years ago. There is a strong tendency to view Chinese authorities as all-powerful villains from James Bond movies, calmly directing everything according to a central plan, as they plot world domination. Every contradictory move would be minutely analysed to work out how it fitted in the grand plan. After the dreadfully ham-fisted response in August 2015, outside analysts have begun to grasp that Chinese officials, like their counterparts elsewhere, are often just making things up as they go along, and reacting to events.
A second reason is that the Chinese response this time is transparently driven by the recent weakness of the dollar. Strengthening the Rmb against the dollar keeps it more stable against other currencies. The following chart compares the exchange rates with the dollar and the euro. China’s currency has weakened against the euro, until the past few weeks.