China The stabilization of the yuan is remarkable. It's weird.

Trade disputes may not be as easy to win as Donald Trump asserts. Its main target, China, is the winner of the public relations war.

From the economy to the markets through politics, China is considered today as the stabilizer and America as the peacemaker.

China was widely praised for its desire to keep its currency stable. This "verbal intervention" signaled that the central bank did not want a prolonged decline in the value of the Chinese currency, the yuan, and that the government would not weaken the exchange rate to earn money. Advantage in its trade with the United States. "China supports multilateralism, globalization, free trade and rules-based international guidelines," said the central bank's financial research institute.

Good for China. This is exactly the line that the world's largest exporter and the second largest economy should take. But the applause that greeted Tuesday's comments tended to miss out: the yuan is a highly managed currency, far more than any other big economy (and a lot of smaller ones). 39; elsewhere). Very little happens that the PBOC does not want to happen. It exerts an important control, even in calm periods. This is not the "invisible hand" of the free market.

The notion that the PBOC has launched a major intervention or initiated a huge change in the market neglects a ton of context. It's not as if Federal Reserve Chairman Jerome Powell or European Central Bank President Mario Draghi woke up one morning and decided that they would draw a line under the dollar or l & # 39; euro. Even Japan, which used to turn the yen, has long since retired from active market participation

The PBOC sets a daily benchmark rate for the yuan after have received bids from lenders. The currency is allowed to fluctuate within a daily limit of 2% on either side of this benchmark rate. In practice, it is rarely even close to 2%. (From time to time, banks are encouraged to change the way they calculate their bids at the daily benchmark rate, sometimes known as fixing.) The government also retains strict control over the inflows and outflows of capital. from China

has made significant progress in allowing flexibility over the years. Until 2005, the yuan was set at about 8.3 to the dollar. In July of that year, the PBOC began permitting daily movements of 0.3% and gradually – even slowly – expanded this band. China also allowed the yuan to fluctuate against a basket of currencies; more often than not, the dollar rate was the one to watch. Over time, China has become more comfortable with letting the yuan appreciate or decline gradually. Movements can accumulate gradually: as of Tuesday, the yuan has been the worst performing currency of Asia in the last three weeks. It is down 2 percent this year.