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The two slight increases in the People’s Bank of China’s central parity fixes for USD/CNY on Monday and Tuesday have stoked speculation that it might be contemplating a devaluation of the Renminbi, however, the fixes for the 24 other currencies in the basket show that a devaluation is likely not on Beijing’s agenda.
As part of its managed-floating exchange rate system, the PBoC establishes central parities for each of the 25 other currencies featured in the China Foreign Exchange Trade System (CFETS) Index at 9:15 am local time each day, and only permits each CFETS/CNY pair to rise or fall 2% above or below that parity level.
It raised the central parities and the related upper limits for 12 of those 25 currencies on Tuesday, and for 13 of these 25 currencies on Monday, in a back-to-back set of fixings that seemingly reflect Beijing’s often-repeated preference for a ‘basically stable’ trade-weighted exchange rate.
The balanced fixes contradict the widely-held notion that it might be seeking to devalue the Renminbi, while reinforcing the tentative bottom and six-month lows marked out by the RMB/CFETS index in late-March.
Above: Change in RMB/CFETS index between August 2024 and April 2025. Source: chinamoney.com.cn. Click for closer inspection.
Moreover, the increased fixings left many of the CFETS/CNY pairs with only limited room to rise further, suggesting that, if anything, officials in Beijing might be keen to avoid a depreciation, not to encourage one.
However, this matters for the other currencies more generally because the PBoC's basket-based exchange rate system creates a positive correlation between the trade-weighted renminbi and trade-weighted US Dollar, and because it’s not possible for Beijing to manage the G20/CNY pairs without also affecting the G20/USD pairs.
The latter is due to the US dollar's intermediary role in determining many of the G20/CNY exchange rates which, together with Beijing's enforcement of trading bands or daily limits in all of those, creates de facto limits for the connected G20/USD pairs.
The latter can be inferred from the fixings for USD/CNY and the CFETS/CNY pairs.
Above: GBP/CNY (onshore) and GBP/CNH (offshore) at daily intervals. Click for closer inspection.
The balanced fixings seen on Monday and Tuesday follow a three-month downtrend in the RMB/CFETS index leading into March 21, with this decline taking place in almost lockstep with the decline in the Federal Reserve's Broad US Dollar Index and the decline of the more concentrated ICE US Dollar Index.
It's possible these balanced fixings and the encouragement of a "basically stable" RMB/CFETS index are intended to deter the market from bearish wagers against the REnminbi in response to the trade spat between Beijing and Washington that began in earnest with the White House's "Liberation Day" event last week.
This saw the White House announce a 54% tariff to be charged on all imports from China, prompting Beijing to retaliate last Friday with more modest levies of its own and restrictions on the export to the US of so-called rare earth metals.
However, on Monday, President Donald Trump then announced that another 50% would be added to the earlier tariff, which would take the total US levy to 104%.