The Conference Board uses cookies to improve our website, enhance your experience, and deliver relevant messages and offers about our products. Detailed information on the use of cookies on this site is provided in our cookie policy. For more information on how The Conference Board collects and uses personal data, please visit our privacy policy. By continuing to use this Site or by clicking "OK", you consent to the use of cookies. 

China Center Chart Dive: RMB devaluation — a guided market correction


June 2016 | China Center Publications

The RMB devaluation since late 2015 is arguably, in part, a market-driven but government-guided correction vis-à-vis the currency’s previous irrational appreciation. Between mid-2014 and July 2015, the RMB appreciated strongly against a trade-weighted basket of currencies. However, this appreciation was not based on any fundamental strengthening of the RMB, and was instead the result of Chinese regulators maintaining the USD to RMB rate at a steady level, even while the USD appreciated against most other major currencies. As a result, USD appreciation also forced the RMB to appreciate against other currencies. 

To counter this irrational appreciation, on August 11, 2015, the PBoC announced a new mechanism of central parity rate formation that better reflected market movements. This new mechanism may be interpreted as a small step toward liberalization, but it is still accompanied by non-market interventions by the PBoC, presumably to avoid financial disorder that could ensue if the RMB were to over-devalue. Nevertheless, between August 2015 and May 2016, the RMB has weakened 6.8 percent against the USD, whilst FX reserves declined by USD 460 billion, in part due to outflows seeking stronger currencies and in part due to the government’s defense of the RMB.



Support Our Work

Support our nonpartisan, nonprofit research and insights which help leaders address societal challenges.

Donate

AUTHOR

YuanGao.jpg

Yuan Gao

Senior Economist
China Center for Economics and Business

FILTER BY CENTER

Our Experts

DavidHoffman1.jpg

David Hoffman

Senior Vice President Asia and Managing Director of the China Center for Economics & Business

AndrewPolk.jpg

Andrew Polk

Co-founder and Head of Economic Research

EthanCramerflood.JPG

Ethan Cramer-Flood

Senior Fellow

ErickLundh.jpg

Erik Lundh

Senior Economist

OTHER RELATED CONTENT