RMB was finally included in SDR, which was symbolic and political acheivement in China's long approach towards internationalising the RMB. Since the decision, CNH is worst performer in Asian currencies, with CNY not too far behind as PBC loosened its grip through central parities in USD/CNY and lowered intervention to limit gains.
The pair has since traded ip though the spike after devaluation, while USD/CNH is not far away from doing the same, which prompter inaccurate assessment that China is devaluing RMB.
In December, a Guest Commentator of CFETS published an editorial highlighting that "the bilateral RMB-USD exchange rate is not considered a good indicator of the international parity of tradable goods" and that "it is more desirable to refer to both the bilateral RMB-USD exchange rate and exchange rate based on a basket of currencies.."
"Managing RMB against a basket of currencies is not new; we think the announcement was a reminder to markets to remove the emphasis on the bilateral rate and that RMB should be viewed against a range of currencies. For instance, a 10% rally in USD/CNY would see a decline inthe basket of less than 3%, all else equal", says RBC Capital Markets in a research note.
