China’s Latest Currency Actions Are Market Driven

China’s move to devalue its currency is “a potentially major step toward a more market-determined exchange rate,” argues Nicholas Lardy for China Economic Watch. The move unleashed a sell-off of global stocks, but is more likely tied to China’s efforts to promote the renminbi as a world reserve currency to the International Monetary Fund and less motivated by currency manipulation intended to boost Chinese exports. The IMF had raised a concern about deviations between the offshore (CNH) and the onshore (CNY) rates” of the renminbi, and Lardy explains how China’s central bank had intervened to limit the currency’s weakening. The US Treasury and the IMF had urged such reforms, and Lardy anticipates “volatility and two-way movement in the value of the RMB vis-a-vis the dollar.” – YaleGlobal