The Wall Street Journal is reporting that minutes of a meeting in China two months ago reveal that officials there have abandoned their commitment to give market forces greater sway in setting the yuan’s exchange rate.  

Reportedly, in response to economists and banks request that officials stop resisting market pressure, one PBOC official explained that “the primary task is to maintain stability.”  The WSJ cites the minutes of the meeting and interviews with Chinese officials and advisers to conclude that the central bank “had ditched the market-based mechanism,” though has not formally announced the change. 

The revelation here is not what it seems. It is not clear that the PBOC operationalized its declaratory policy in the first place. It is true that the yuan fell last August, but it was simply a two-day 3.8% move. The element of surprise and the uncertainty of policymakers’ intent spurred the anxiety.  

At the time, and in hindsight, it appears that Chinese officials were trying to decouple the yuan a bit from the dollar to prepare for the FOMC rate hike which many thought was going take place in September 2015. The yuan weakened again starting in early November, as it to prepare for A December Fed move, which was ultimately delivered. The dollar advanced about 4.5% against the yuan from early-November through early-January. 

By way of comparison, the euro fell nearly 8.5% against the dollar from mid-October through early-December (when the ECB’s actions did not match the urgency that Draghi had expressed). That the dollar appreciated against the yuan as it moved higher against most other currencies gave the impression that market forces were at work, but might not have been in reality. 

The WSJ claims that the exchange rate is “now back under tight government control.”  We suspect this is not new and has been the case except for a couple of times when officials tolerated market forces that were pushing the yuan in the direction that officials wanted.