Renminbi “devaluation” may not be such a big deal

Today’s reduction in the daily reference rate for the renminbi has been widely interpreted as the first of many moves whose main purpose is to regain competiveness by devaluing the Chinese currency. This has prompted talk of a fresh round of global “currency wars”, additional monetary easing elsewhere, and even speculation that the Fed will be slower to raise US interest rates. Government bonds and gold have benefited, while global equities and other Asian currencies have weakened. However, we are sceptical that the PBOC’s announcement is truly a game-changer.