People’s Bank of China Explains Today’s Historic Actions

August 11, 2015

China’s central bank took giant steps today in the evolution of its monetary policy whose end-point is to give market forces greater determining impact in the country’s financial markets.  Several files of information can be found on the web site, the most useful being in a question and answer format.  One explains the context and goals of a one-time yuan devaluation and new format for deriving the central bank’s daily central parity.  Another file provides explanations and context for cuts announced today in China’s targeted reserve requrement ratio and benchmark loan and deposit interest rates.  Today’s 1.9% devaluation, while a stochastic action, will not constitute the end of the yuan’s move.  Like the revaluation in July 2005 that ended a ten-year unchanged peg to the U.S. currency, today’s controlled one-time adjustment is likely to be followed by ongoing unannounced and nonlinear movements of the currency from day to day, week to week and month to month, that will reflect the future evolution of China’s economy and its capital flows with the rest of the world.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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