China has embodied the hopes and fears of America since the recovery began in 2009. The hope is that China will take part in a global rebalancing, increasing consumption and importing more. The fear is Beijing continues artificially to depress its currency to boost exports, acting as a parasite on global growth.
Yesterday brought what is sure to look from Washington like a retrograde step. The Chinese central bank set its noon peg at Rmb6.31 to the dollar, the biggest daily weakening since October 2010. The currency, allowed to move in a band round the official peg, is now weaker than at the start of the year.
But the People’s Bank of China cannot simply pick an exchange rate. Money crosses the porous capital controls surrounding China, influencing the rate. As capital finds more holes – from offshore renminbi bonds or Chinese corporate activity to gambling in Macao – the PBoC has less control.