Management, Not Manipulation

The Trump administration labeled China as a currency manipulator after the Chinese renminbi (RMB) fell in value below 7 per U.S. dollar recently. We disagree and believe China was managing rather than manipulating its currency.

It is important to keep in mind the various currency regimes globally. In any country, the value of the exchange rate fluctuates due to changes in numerous variables. Some economies, such as the U.S., opt for a free-floating exchange rate where the movement is set entirely by market forces. Some economies, for example Hong Kong, fix the exchange rate to a very narrow range. Other economies manage the exchange rate to some degree. The RMB is one of the currencies that is heavily managed to reduce volatility (see Figure 1 below). For example, year to date, the RMB depreciated by roughly 2.5%, in line with the rest of the emerging market (EM) countries (see Figure 2 below) and with less volatility than most EM countries.