CNY: PBOC has brought the currency back under tight control - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that the Wall Street Journal has an excellent piece of investigative journalism exploring what has happened behind the scenes on the CNY policy front.

Key Quotes

“Since 4 January the PBOC has brought the currency back under tight control rather than allowing market mechanisms a greater role; that’s perhaps not a surprise to those who follow that particular FX cross, but nonetheless it is at odds with the official public stance.

The article also backs the view I have previously put forward that daily CNY fixing now alternates between using USD and the broader basket of currencies as an anchor: when USD goes down, they use the USD; by contrast, when USD goes up they look to the basket of currencies to maintain an unacknowledged depreciation bias.

The article also underlines the policy tug of war taking place between those still arguing for a weaker/more free CNY and those who back stability (i.e., those who still have large unhedged USD debts).”