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.