The People’s Bank has succeeded over the past few weeks in shifting expectations for the renminbi’s future path while also scaling back its foreign exchange accumulation. At first glance the data suggest that capital inflows have stalled. But a closer look suggests the key difference is that Chinese firms are now more willing to hold foreign currency and to settle import bills in foreign currency rather than in renminbi. This takes some pressure off the PBOC but does not equate to a lasting decline in appreciation pressure.
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