China’s central bank, the People’s Bank of China, set the renminbi’s official exchange rate to the dollar lower by 1.1 percent on Thursday, bringing the total devaluation since Tuesday to 4.4 percent, the biggest drop in decades.
At an unusual ad hoc press conference, however, officials from the central bank were at pains to explain that the currency had not entered a free fall.
“The central bank has withdrawn from the normal mode of intervention,” Yi Gang, the deputy governor of the bank and the head of the unit that runs China’s foreign exchange system, told reporters in Beijing. “But if you say the market has commonly recognized rules of the game, then those are still the rules that we lay out.”
Mr. Yi was referring to changes to China’s currency system that were announced on Tuesday, as the bank devalued the renminbi by nearly 2 percent. It was the biggest daily drop since 1994, when China’s modern currency system began.
Previously, the central bank would assign a value to the currency each morning, and would allow it to trade up or down by a maximum of 2 percent against the dollar. In practice, it barely budged more than a fraction of percentage point each day.
Now, policy makers have said they are giving the market a bigger say by basing the official exchange rate setting on the currency’s trading performance, not just on a government decree.
Still, central bank officials made clear on Thursday that while they intended to ease their grip somewhat, they would not end it.
On Wednesday, when the renminbi showed signs of weakening by the maximum 2 percent limit, the central bank was widely reported to have jumped into the currency market, selling dollars to push up the value of the renminbi — which rapidly recovered to close only 1 percent lower.
Mr. Yi did not directly comment on any intervention when asked about it on Thursday, but hinted it was a tool still at the central bank’s disposal. “When there’s excessive volatility in the market, it can still be effectively managed,” he said.
Nytimes.com
