People's Bank of China

The central bank of China. Its exchange rate arrangement is the feature that separates it from its peers: a reference rate is published each morning and the currency is permitted to trade within a stated band either side of it, which is a managed arrangement rather than a fixed peg or a free float. The reference rate is set with reference to the previous close and to a basket of other currencies, with a discretionary component the institution does not publish in full.

It also operates through a wider set of instruments than a single policy rate. Reserve requirements on banks, several administered lending and deposit rates, quantity guidance to the banking system and direct operations all sit in the toolkit, and any of them can be the instrument a decision is delivered through. Its intentions are therefore usually visible in the terms of an operation or in the drift of the reference rate, which makes reading it inference from what has been done rather than interpretation of what has been said.

The arrangement constrains the chain that runs from inflation to rates to a currency. A country holding an exchange rate within limits while also setting rates for its own economy has to restrict the movement of capital, and China does. That is why the renminbi does not respond to its own data the way a floating currency does, and why the pairs most sensitive to Chinese policy are frequently those of its trading partners rather than the renminbi itself.