Council of Councils
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Introduction
Over the last several decades, governments have collectively pledged to slow global warming. But despite intensified diplomacy, the world is already facing the consequences of climate…
Did anything really change with the RMB today?
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Widening the trading bands around other currencies does not strike me as a big deal. It - in a sense - just makes it easier to stick with something that approximates a dollar peg when there are large moves in the euro/ $ or yen/ $. From the FT:
Currency market strategists said that when the euro/dollar exchange rate moved by more than 1.8 per cent, the central bank was left with the option of allowing one of the two bands to be breached, or intervening in the euro/dollar cross rate. "It is theoretically difficult to manage your currency against two different currencies unless you are willing to intervene in those currencies trading against each other," said Derek Halpenny, senior currency economist at the Bank of Tokyo-Mitsubishi.
In that sense, widening the bands around currencies other than the dollar makes it easier to stay pegged closely to the dollar. It is not necessarily a signal of a desire to allow greater "flexibility" in the renminbi/ dollar.
I tend to agree with Julian Jessop:
"This may well have been timed to give the impression of greater flexibility ahead of the G7 meeting but in reality it is a red herring," said Julian Jessop, chief international economist at Capitol Economics.
It may or may not be signal that China will move toward more flexibility in the future. But as of right now, I don't think much has changed.
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