China is changing its tactics on the renminbi, according to analysts and traders, with a shift away from direct intervention and towards lower-profile, indirect tools to steer the market, reports the Financial Times. The currency dropped almost 8% last year against the soaring dollar. But Beijing smoothed out that decline using tools such as so-called “invisible reserves” held by state banks, rather than its more typical heavy-handed intervention by the People’s Bank of China.
Beijing’s new approach to currency management poses a challenge to traders seeking to anticipate the renminbi’s next move, and to foreign officials, such as the US Treasury, who want to understand how tightly China’s currency is controlled.
“China’s overall foreign exchange management framework has changed,” said Becky Liu, head of China macro strategy at Standard Chartered. “When you directly intervene, people calculate how much [reserves] you have to burn on a monthly basis and how many more months you have left. In that situation people will short the renminbi at all costs,” Liu said. “This time around, they’re putting a lot of other measures in place so the amount of foreign exchange interventions needed is lower.”
