RMB fixing: Right decision, wrong time, global consequences

Tuesday’s surprise decision by the People’s Bank of China to allow the renminbi to be more market-driven was an important and necessary step as the country attempts to move to a more open economy. The mistake has been to do it at a time when China is under stress from falling economic growth. But what the fallout has made abundantly clear is that the renminbi is already a global currency.

  • By Lorraine Cushnie
  • 13 Aug 2015
Email a colleague
Request a PDF

With hindsight, we should have seen it coming. The signals from China’s economy are that it has been weakening for a time. The latest figures showed imports falling 15% and exports 1% in the first seven months of the year. Industrial production in July was down 6%.

Add to that a plunge in the stock market that means the Shanghai Stock Exchange Composite Index is still 25 below its June peak, and it's clear something needed to happen.

Yet while all that was happening, the renminbi continued to appreciate. Other Asia currencies fell as the dollar strengthened.

The real surprise should be that Beijing waited this long to remove the obstacle of a strong renminbi, an obstacle that has done its part to slow China’s growth. After all, one of the easiest ways for a country to boost its economy is to engineer a weaker currency: quantitative easing suits some, currency manipulation suits others.

The fact that China has done so under the guise of introducing more market-driven forces into its exchange rate is a nice fig leaf for what is effectively an act of desperation. It is true that China has been introducing a more market-orientated approach in various areas of finance, but as economists have pointed out, a country's decision to transition from a fixed to floating exchange rate is usually made during a period of economic strength.

But to judge by the extraordinary measures China took to shore up its equity market — including banning companies from selling their own stock and forcing brokerages to buy back their own shares — it is clear that Beijing will use every weapon in its arsenal to support its economy.

Devaluing the currency is just part of this pattern. Any pretence about this move really being about market forces was abandoned when on Wednesday night the PBoC intervened to stop the currency falling too much. Depreciation will only be tolerated if it’s steady and within Beijing’s comfort level.

It is generally accepted that the PBoC has a target level in mind for the renminbi, with a number of estimates coalescing around the Rmb6.5-Rmb6.6 area. It will be interesting to see how the central bank defends that position if it is severely tested. Thursday's daily fix was 6.4010. On Monday it had been 6.11.

What the week’s events do make clear is that the renminbi is a global currency. Maybe not in the sense of being a reserve currency or a replacement for the dollar, but in the fact that what happens to the renminbi has an impact worldwide.

Arguably the PBoC is now second only to the US Federal Reserve in how much influence its domestic monetary policy has on worldwide economic growth. But unlike the Fed, the PBoC is unlikely to be providing regular updates on its thinking or transparency on what data it is looking at. Get ready for more surprises. 

  • By Lorraine Cushnie
  • 13 Aug 2015

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 18.86
2 Industrial and Commercial Bank of China (ICBC) 14.39
3 China Merchants Bank Co 14.21
4 China Merchants Securities Co 8.85
5 Agricultural Bank of China (ABC) 5.90

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 China International Capital Corp Ltd 3.43 16 14.07%
2 China Securities Co Ltd 3.30 5 13.56%
3 Morgan Stanley 2.76 8 11.34%
4 CITIC Securities 1.95 6 8.01%
5 Citi 1.49 9 6.11%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Citi 5.04 24 8.43%
2 HSBC 4.17 35 6.98%
3 UBS 3.58 19 5.99%
4 BofA Securities 3.53 11 5.91%
5 Credit Suisse 3.37 24 5.64%

Asian polls & awards

  • GlobalCapital China 2019 awards winners: Part III

    In the final part of GlobalCapital China’s awards announcement, we discuss the key innovation of 2019, and reveal the individual that has made the greatest contribution to reforming and internationalising the Chinese onshore market.

  • GlobalCapital China 2019 awards winners: Part II

    In the second part of GlobalCapital China’s awards announcement, we reveal the winning banks across Panda bonds, G3 bonds and ABS, as well as the best bank for securities services and the most impressive law firm.

  • GlobalCapital Asia capital markets awards 2019: Investment banks

    In the fourth and final instalment of GlobalCapital Asia’s capital markets awards announcements, find out which firms have been named the Best Asian Investment Bank and the Best Investment Bank in the region for 2019.

  • GlobalCapital China announces 2019 awards winners: Part I

    GlobalCapital China, previously GlobalRMB, is pleased to announce the winners of its annual capital markets awards, honouring the banks, companies and individuals that have made the biggest contribution to bridging the gap between China’s markets and the rest of the world. In part one of the awards, we reveal the most impressive issuers in the FIG, corporate and SSA categories.

  • GlobalCapital Asia capital markets awards 2019: Bonds

    In part three of GlobalCapital Asia's awards results announcements, we reveal the winning bond deals across a variety of categories. In addition, we also name the Best G3 Bond House, Best High Yield Bond House and the winner of the Best House for SRI Financing.