The aging dollar peg: time for the PBC to bid it farewell
– the Chinese economy is simply too big to remain tied to this once useful monetary anchor — it’s time to let it go.
by Guonan Ma on 19th February 2015
The Chinese renminbi (RMB) depreciated 2.5 percent against the US dollar in 2014. This was the first depreciation since 2005, when Beijing timidly started loosening its tight dollar peg. Recently, the RMB has repeatedly tested the weak side of its daily trading band, despite attempts by the People’s Bank of China (PBC) to signal its preference for a steadier bilateral RMB-USD rate via its daily fixing (Figure 1, left panel). What has led to the changing fortunes of the RMB? What lies ahead for the currency in 2015?
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