Jake's View | Beijing's foreign exchange policy nothing but a silly game

The mainland's foreign-exchange regulator said recent volatility in the yuan's exchange rate is normal, while playing down the possibility of large capital outflows, in a statement apparently aimed at easing market concern over a sharp currency depreciation.

Call me an artist: I always say a picture explains things best, and my chart on China's net capital flows certainly says all you need to know about why Beijing is playing silly games with the yuan again.

Let's get it straight first of all that this is indeed silly games. Until anyone in the mainland can take money freely in and out of the country, the yuan remains officially defined as funny money. There is no such thing as "normal" in the yuan exchange rate. Normal market forces do not determine it.

It is rather central government policy that is the operative factor here and, lest you think that policy results from the considered deliberations of informed experts, yuan policy over the last two years has been set by a huge crack-the-whip gyration in the balance of payments.

The chart shows you that capital inflows suddenly collapsed in 2012 and the year ended with a net outflow of almost US$100 billion.