As part of its surprise announcement, the PBoC also said it would implement a new market-determined framework for fixing the currency's daily official rate against the dollar — a big step forward in liberalising the renminbi in a way that reflects market reality.
The changes have had huge repercussions around the world. Asian currencies have come under immense pressure and global stock markets have weakened. Adding to the confusion is the fact that there has been no clear signal about how far the PBoC will let the currency slide.
Analysts have been scrambling to understand the ramifications of the devaluation. Some fund managers contacted by GlobalCapital Asia on Thursday refused to even speculate on the implications, fearing that anything they said might further impact already turbulent markets.
But depending on whom you ask, China’s move to tolerate a weaker currency is either a revolutionary development for its financial markets, or one that was “really about avoiding hell”, as Natixis labelled it in a research note.
As the week progressed, there was some recognition by the PBoC that it may have misjudged the impact of its actions. In a hastily convened press conference on Thursday it sought to calm the market by saying it did not think the currency needed to fall much more than the 3% it had already dropped this week.
While this brought some calm to markets, it has done little to end the longer term questions that this week's developments have thrown up. These include reassessing how weak the Chinese economy might be and also whether the US Federal Reserve will now need to delay any rise in interest rates.
In a series of articles in this week's issue, GlobalCapital Asia takes a look at the implications of the devaluation on Asia’s capital markets.
China's renminbi devaluation — full GlobalCapital Asia coverage
Jury out as market digests RMB moves
Opinion: Right decision, wrong time, global consequences