Consider this a pretty solid example of why Wall Street is totally confused by China.
You may remember that in late 2015, China decoupled the yuan from the dollar and pegged it to a basket of currencies.
Well, it turns out China quietly decoupled the yuan from its basket in mid-January and recoupled it to the dollar, according to Dow Jones.
Not helpful, guys.
For weeks markets have been swinging and swaying depending on the fluctuations of yuan.
It got a lot of people on Wall Street whining about China having a communication problem. News like this doesn’t help. A heads up would be nice.
In an interview with Caixin Magazine that appeared over the weekend, Chinese Central Bank Governor Zhou Xiaochuan explained that this didn’t change the ultimate “direction” of where the yuan was going so, you know, whatever.
The direction of RMB exchange rate regime reform remains unchanged, that is, a managed floating exchange rate regime based on market supply and demand and with reference to a basket of currencies. First, market supply and demand are emphasised. The market is to be respected despite the existence of short-term speculative forces. In the mind of the central bank, there is not an optimal, model-produced exchange rate level.
Yup. Totally clear now.
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