HONG KONG — Global stock and foreign exchange markets were fast out of the blocks to lead the applause for China's decision to free the exchange rate of the renminbi. Clearly licking their lips at the prospect of greater foreign access to China's fabled market of 1.3 billion consumers, stock markets in Japan and Asia leaped by 2.5 to 3 percent, Europe and the United States followed, while the 12-month forward rate of China's currency against the dollar was at 6.62, implying a 3 percent appreciation. (This compares with 25 percent by which advocates of renminbi appreciation believe the currency is undervalued.)
Yet the real lessons of Beijing's surprise move are that markets are not to be trusted in understanding complex politics and economics, and that China is still not prepared to be a responsible player in the global economy.
The markets had the excuse that U.S. President Barack Obama, his treasury secretary and the European Commission all praised Beijing's decision as opening the door to a new flexible and more open regime, even though China clearly warned that, "There is at present no basis for major fluctuation or change in the renminbi exchange rate."