Government Policy

The Power of A Government Catalyst

Executive Summary:

  • China’s government announced support for a stable Renminbi (RMB) during important policy meetings
  • Top Chinese officials continue to push for the RMB to become a global reserve currency
  • The RMB began to appreciate against the U.S. dollar (USD) after these announcements

Announcements made by China’s leadership during important government meetings caused its currency to immediately appreciate 1.3%* against the U.S. dollar

March 24th, 2015 – Every year China holds an annual meeting of its two most important governing bodies, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). During the “two sessions”, as they are commonly known in China, the country’s leadership makes major announcements that shape the policy and economic direction of the world’s second largest economy for the rest of the year and into the future. This year’s meetings, held from March third through fifteenth, yielded a number of results that will impact investors in China’s capital markets. One key theme was the leadership’s announcement of its desire to keep the RMB stable compared to the U.S. dollar and other global currencies.

Yi Gang, the Deputy Governor of the State Administration of Foreign Exchange, stated in a post on Chinese social media that,
“the Renminbi will remain basically stable and will not join the ranks of devaluation.” 1 He also stressed the importance of making the RMB a global reserve currency through lobbying the International Monetary Fund (IMF) to include it within its Special Drawing Rights (SDR) group. The SDR is a basket of national currencies, which serves as an international type of monetary reserve currency. Mr. Yi said, “We hope the IMF can fully take into account the progress of the renminbi’s internationalization and include the renminbi into the basket underlining the SDR in the near, foreseeable future” 2. The RMB’s eligibility for inclusion into the SDR is a vote of confidence for its future as a stable global reserve currency.

Following Mr. Gang’s comments, China’s Premier Li Keiqiang reiterated the government’s desire for a stable RMB. In a statement during the NPC, Premier Li commented that in light of global turmoil the Chinese government could have, but did not, “issue excessive currency” 3. This was the second time during this year’s meeting that Mr. Li highlighted and then eschewed the government’s reform power, previously stating, “In recent years, we have not taken any strong, short-term stimulus policies, so we can say our room for policy maneuver is relatively big, the tools in our toolbox comparatively many.”

Based on the implied support of the government’s leadership, the RMB has reacted with a strong appreciation versus the dollar in recent days. The chart below shows USD/RMB from March 2nd to today. USD/RMB represents the ratio of how much RMB would be required to equal one U.S. dollar at a given point in time, downward movement means the RMB is appreciating against the USD.

Data from Bloomberg as of 3/24/2015.

*China’s currency is officially called the renminbi. The yuan is the unit of account. The renminbi, denoted RMB, is thus the name for the currency traded onshore and offshore. There exists a separation between these two markets, as China institutes capital controls that prevent the currency from flowing abroad and vice versa. If the RMB is traded onshore (in mainland China), it is referred to as CNY, whereas if the RMB is traded offshore (mainly in Hong Kong) it trades at the rate of USD/CNH, deliverable RMB located in Hong Kong. Thus, while the RMB is just one currency, it trades at two different exchange rates, depending on where it is traded. This chart depicts the USD/CNH rate, offshore RMB appreciated 1.3% against the USD over the highlighted time period (3/2/2015 – 3/24/2015). For more on the topic visit:

¹ article titled “Yi Gang: The Depreciation of the Renminbi Will Not Join The Army”. Special thanks to Bill Bishop of for highlighting this article issued in China.

² article titled “Beijing asks for RMB Inclusion in SDR Basket”

³Premier Li’s speech titled “Report on the work of Government” accessed on