The recent flood of capital leaving China has been driven primarily by increased scepticism that the People’s Bank will hold to its pledge to keep the renminbi stable. The fact that the PBOC has ended up in this position despite its massive foreign exchange reserves is testament to how little credibility China’s policymakers have. Nonetheless, we believe that the PBOC both wants and will be able to keep the renminbi steady in trade-weighted terms for the foreseeable future.
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