Put helicopters in the same sentence as central banks and the assumption is you are discussing boosting an economy by showering cash from on high. In China, however, the notion is in reality more akin to so-called “helicopter parenting”, given Beijing’s constant micromanagement. The renminbi is one example. If China truly wants to internationalise its currency, it must learn to let go.
Last week was a case in point. A rapid rally in the renminbi pushed the currency to 21-month highs before the People’s Bank of China relaxed two controls that had acted to boost the currency. The moves could be seen as a stepping back, if it were not for two things. The tweaks were targeted at limiting a rally, not letting the renminbi find its own level. And the gains were ed by the onshore market, which in itself is a sign of the PBoC’s control because it has crushed the offshore market — the wilder of the two renminbi markets — during the past two years.
If China is ever to change its helicopter habits, the offshore market is the key. Unlike onshore traders, tethered to moving the renminbi by a maximum of 2 per cent each day from a central point (and in reality never using half that range), their offshore brethren can in theory set their own level. But this has not been happening. Renminbi deposits in Hong Kong have virtually halved and a weaker currency is only one reason. The renminbi “dim sum” bond market has also shrunk dramatically, while China too has played its part by restricting renminbi flows into Hong Kong. With fewer products and a far smaller liquidity pool, many international investors have little interest in the market.