Topic: Currency

Beijing has prioritized RMB internationalization over its control of the currency. As a result, the central bank’s (PBoC) ability to influence the RMB has greatly diminished – and is set to diminish further.

Investors are growing increasingly bearish on the renminbi – but we think of all the worries that Chinese officials have on their plate at the moment, this is not a big one.

Over the past two weeks, Chinese policymakers have consistently expressed unease about the renewed pace of currency appreciation – signaling to markets their concern around the CNY becoming a one-way bet and setting off a spate of hot money inflows

The renminbi’s recent weakening against the US dollar raises the prospect that Beijing’s tussle with trying to restrain runaway appreciation is over.

The renminbi has continued on its upward trajectory. On a trade-weighted basis, it is now at its strongest since June 2018.

A strong renminbi helps to attract foreign capital, bolster consumer spending, and underscore the Chinese economy’s strength vis-à-vis other countries. But it also puts considerable pressure on the export sector, and risks attracting a destabilizing wave of carry trade inflows.