Jim O'Neill, Columnist

China and Its Currency Grow Up

China's new rule for permitted fluctuations in the renminbi shows its currency is becoming more normal.

March 17, 2014 at 4:32 PM UTC

Jim O'Neill worked for Goldman Sachs Group Inc. from 1995 until 2013, serving most recently as chairman of Goldman Sachs Asset Management, and as the firm's chief economist from 2001 to 2011. Before joining Goldman Sachs, he was head of global research at Swiss Bank Corp. O'Neill is the creator of the BRIC acronym, which was derived from his thesis that Brazil, Russia, India and China would dominate growth in emerging markets. He is a member of the boards of the Brussels-based policy-research centers Itinera Institute and Bruegel. He earned a degree in economics from Sheffield University in 1978 and a doctorate from the University of Surrey in 1982. He lives in London.

The renminbi is now allowed to trade as much as 2 percent on either side of a reference rate set by the People’s Bank of China. Photographer: SeongJoon Cho/Bloomberg — The renminbi is now allowed to trade as much as 2 percent on either side of a reference rate set by the People’s Bank of China. Photographer: SeongJoon Cho/Bloomberg

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China's central bank has announced a widening of the trading band of the renminbi from a daily maximum of 1 percent to 2 percent. The move follows a recent increase in the currency's volatility, and the apparent end of its long, slow rise against the dollar. What does the new policy mean?

Some will say, not much. The People's Bank of China, on one view, is merely responding to market forces. The sudden downward pressure on the currency merely reflects a new reality, in which China faces economic challenges and its growth slows as a result. Perhaps officials welcome the depreciation because it will help to stimulate the economy. In any event, it's an essentially passive response to events they can't control.