The 811 Exchange Rate Reform: The Renminbi's First Time Tossing and Turning in the Night

Before August 11, 2015, the Renminbi (RMB) was like a price placed inside a display case. The glass was wiped very clean, the lighting was very soft, and a label reading "basically stable" was pasted next to it. Looking at it for a long time, the market truly believed it wasn't a price, but an exhibit. Traders treated it as background, corporate treasurers treated it as the most obedient box in their budget spreadsheets, and when residents allocated their assets, they treated it as a piece of furniture that wouldn't suddenly bite.

This kind of comfort was expensive, and also highly toxic.

When enterprises borrowed foreign debt, exchange rate risks were written into the documents, much like the fire escape map behind a hotel room door—it's posted there, but rarely does anyone actually look at it during normal times. Carry trades were even more direct; they fed on the interest rate spread and drank the anesthetic of low volatility. When residents looked at US Dollar, Hong Kong Dollar, and RMB assets, they also often treated the exchange rate as a quiet floor. As long as the floor didn't creak, everyone pretended there was no basement downstairs.

Until the morning of August 11, 2015, when this floor made a sound.

On that day, the People's Bank of China (PBOC) announced improvements to the quotation mechanism of the RMB to USD exchange rate central parity rate (intermediate rate). From that day on, before the daily opening of the interbank foreign exchange market, market makers had to refer to the closing rate of the interbank foreign exchange market on the previous day, comprehensively consider foreign exchange supply and demand, as well as the changes in the exchange rates of major international currencies, to provide central parity quotes to the China Foreign Exchange Trade System. That day, the RMB to USD central parity rate was adjusted downwards by 1,136 basis points to 6.2298, a depreciation of nearly 2%.

What the market saw first was the depreciation.
What the central bank wanted to convey was the mechanism.
The gap between these two is precisely what makes the 811 Exchange Rate Reform most worth writing about.

On the day of 811, the RMB didn't fall out of bed. It just turned over in the night for the first time, scaring awake all the people beside it who had been pretending to be asleep.

I. The Opening: The Background Suddenly Starts to Speak

Before 811, the RMB exchange rate was like a plain-colored wallpaper in a room. It existed, but very few people looked at it seriously. Traders monitored interest rates, stocks, commodities, and credit spreads every day, while the RMB was more like a quiet assumption in a report.

Risks were hidden within this quietness.

When the finance departments of many companies prepared budgets, they would place the RMB exchange rate within a very narrow range. Carry trade funds were more direct; they earned the interest rate spread and also bet that the exchange rate wouldn't suddenly turn hostile. There was a similar psychology in residents' asset allocations; the long-term stability of the RMB created an illusion that the exchange rate was merely background noise.

On August 11, 2015, the PBOC's actions changed this habit. The central parity rate was no longer just an official number that had been smoothed over; it started to more explicitly reference the previous day's closing price. How the market traded yesterday would have to be listened to more carefully by the central parity rate today.

This event looked like a technical adjustment, but it was actually like tearing off a corner of the wallpaper. Behind the wall lay the USD cycle, foreign exchange supply and demand, capital flows, and the pressures the market had previously pretended not to see.

On August 13, 2015, the PBOC held a briefing on improving the RMB to USD central parity quotation mechanism. Zhang Xiaohui, Assistant Governor of the PBOC at the time, stated at the meeting that many people believed this adjustment was an important step in the market-oriented reform of the RMB exchange rate formation mechanism, enhancing marketization and exchange rate flexibility. Zhang Xiaohui also mentioned that the differing voices in the market primarily focused on whether it would trigger the RMB to enter a noticeable depreciation channel in the short term, causing shocks to the capital market.

This was a very honest statement. At that moment, the market was in no mood to appreciate institutional design. The prices jumping on the screens were more direct than any policy wording.

Only when the background suddenly began to speak did everyone realize they had actually been sitting right next to it all along.

II. Why Did the Renminbi Have to Turn Over?

The RMB did not turn over in August 2015 for no reason.

After 2014, the US Dollar strengthened, and emerging market currencies came under pressure. At the time, an official in charge at the PBOC explained that the international economic and financial situation was complex; the US economy was in a recovery process, the market expected the Federal Reserve to raise interest rates within the year, the USD continued to strengthen, the Euro and Yen weakened, currencies of some emerging economies and commodity-producing countries depreciated, and the volatility of international capital flows increased.

In such an environment, the RMB appeared a bit too rigid.

At the briefing on August 13, 2015, Zhang Xiaohui stated that the RMB was relatively strong compared to other currencies. According to calculations by the Bank for International Settlements, since 2014, the RMB's nominal effective exchange rate and real effective exchange rate had appreciated by 10.28% and 9.54%, respectively. Zhang Xiaohui went on to say that, from the perspective of keeping the RMB's effective exchange rate relatively stable, the RMB to USD exchange rate also had a certain requirement for depreciation.

This wasn't simply a matter of saying "the RMB should fall".

To be more precise, the reading on the thermometer and the patient's bodily sensation started to mismatch. The central parity rate was originally a benchmark exchange rate that should guide market expectations and reflect market supply and demand. However, for a period of time, the central parity rate deviated significantly from the market exchange rate, and this persisted for quite long.

An official in charge at the PBOC mentioned in the August 11, 2015 policy explanation that this deviation affected the central parity rate's status and authority as a market benchmark. At the August 13 briefing, Zhang Xiaohui said that based on market surveys and general estimates by analysts, this deviation had accumulated to about 3%. "This kind of error cannot be sustained long-term" and needed to be adjusted by enhancing the marketization and benchmark nature of the central parity rate, so as to prevent an excessive accumulation of imbalances.

This is why the RMB had to turn over.

The bed didn't collapse. It's just that lying in the same posture for too long causes the body to go numb.

If the central parity rate stays detached from the market for a long time, the market will develop two sets of languages. One is the official price, and the other reflects true supply and demand. The longer these two languages differ, the more it hurts when they are realigned.

The pain of the 811 Exchange Rate Reform lay exactly here.

III. Why the Market Saw the Tossing and Turning as a Freefall

The market does not like being woken up in the middle of the night.

A one-time adjustment of nearly 2% in the RMB to USD central parity rate on August 11, 2015 might not be the end of the world for general asset prices. But for the RMB exchange rate mechanism, it was a seismic shift in the rules.

Traders don't read the full policy background first. Prices move first, positions hurt first, and the explanations slowly catch up later.

Corporate finance departments started recalculating foreign debt exposures. Carry trade funds began to examine whether they had been treating exchange rate volatility as a free insurance policy. Residents started asking if they should exchange for US Dollars. The offshore RMB started to feel anxious on behalf of the market. The RMB, which used to be like a small nightlight, suddenly became the main light in the room.

It is not hard to understand why the market perceived this turning over as a plunge.

It originally thought the RMB would never move like this. More accurately, it believed policy would forever pin the RMB down within a low-volatility range. 811 tore a hole in this illusion; the sound wasn't loud, but it was just ear-piercing enough.

On August 13, 2015, Zhang Xiaohui stated at the briefing that after two days of adjustment, the RMB was gradually returning to market-oriented levels, and the previously mentioned accumulated depreciation pressure of around 3% had been released in a one-off manner; the prior deviation correction was basically completed. Zhang Xiaohui also said that looking at domestic and international economic and financial conditions, there was no basis for continuous depreciation of the RMB at present, and the central bank had the ability to keep the RMB basically stable at a reasonable and equilibrium level.

Yi Gang, then Deputy Governor of the PBOC and Administrator of the State Administration of Foreign Exchange (SAFE), also stated at the same briefing that this reform was mainly an adjustment made to the RMB to USD central parity quotation mechanism, and after the adjustment, the entire exchange rate formation mechanism would be more market-oriented. Yi Gang also said, "A market-oriented mechanism is more conducive to long-term stability."

This was the part the central bank most wanted the market to understand.

On the day of 811, the RMB wasn't pushed out of bed. It just finally didn't have to be forced into one posture by others anymore.

It's just that the market hurt too much at the time, and cried out first.

IV. The Central Bank's Communication Dilemma

The biggest difficulty of 811 wasn't in the formulas.

The real difficulty was communication.

If no changes were made, the deviation between the central parity rate and the market rate would continue to accumulate. The more stable the price appeared on the surface, the thicker the internal pressure grew. When that pressure eventually concentrated and released one day, the shock the market suffered could be even greater. However, a sudden change could easily be interpreted by the market as the central bank abandoning stability, or even actively guiding depreciation.

The central bank stood in a very uncomfortable position at the time.

On one side was the central parity rate that had already begun to distort. On the other side were extremely sensitive market expectations. Exchange rate reform was like reducing the dosage for someone who had long relied on sedatives to sleep; the doctor knows you can't keep administering them, but the patient's first reaction upon waking might be panic.

The briefing on August 13, 2015, was an emergency first-aid for expectations.

Zhang Xiaohui explained the internal and external background. She noted that the unexpected jump in monetary and credit data in July, and the relatively fast growth of money and credit promoted by loose liquidity, affected the supply and demand dynamics in the foreign exchange market, bringing some depreciation pressure on the RMB exchange rate. She also pointed to the strengthening USD, weakening Euro and Yen, pressure on emerging market currencies, and the adjustment requirements brought about by the RMB's relatively strong effective exchange rate.

When facing questions from Hong Kong journalists about RMB internationalization, market confidence, companies with foreign debt, and currency wars, Yi Gang emphasized that this reform was an adjustment of the quotation mechanism, and a market-oriented mechanism was more conducive to long-term stability. Yi Gang also acknowledged that certain enterprises with unhedged foreign debt or trade financing would indeed be affected by exchange rate fluctuations.

These words were important because they directly addressed the market's greatest fears.

The central bank didn't pretend the market wasn't hurting. It merely wanted to say that pain did not mean the direction was wrong.

The announcement was responsible for changing the rules, while the briefing was responsible for handling the panic. Traders then priced both the rules and the panic into the market.

Later, then-PBOC Deputy Governor Pan Gongsheng was in charge of foreign exchange and financial market-related work for a long time. Public resumes show that PBOC Deputy Governor Pan Gongsheng became the Party Secretary of SAFE in December 2015, and the Administrator of SAFE starting in January 2016. Fast forward to the 2024 Lujiazui Forum, when discussing the RMB exchange rate, Pan Gongsheng stated that the PBOC insists on the decisive role of the market in exchange rate formation, maintains exchange rate flexibility, and at the same time strengthens expectation guidance to resolutely prevent the risk of exchange rate overshooting.

This statement feels like a summary of China's exchange rate governance after 811.

Prices must be able to move, but expectations cannot be allowed to go crazy.

V. 811 in the Rearview Mirror

Looking back from the rearview mirror, the significance of the 811 Exchange Rate Reform is much greater than the near 2% adjustment that day.

It made the market realize that the central parity rate was not a forever unchanging decorative plaque. If it was to act as a benchmark exchange rate, it had to be closer to the market. Once the previous day's closing price, foreign exchange supply and demand, and changes in major international currencies entered the market makers' quotation logic, there was a stronger continuity between the central parity rate and the market trading price.

After 811, two-way fluctuation of the RMB gradually became a reality the market had to accept. Enterprises started taking hedging more seriously, and traders began paying more attention to onshore RMB, offshore RMB, central parity rates, closing prices, swap points, and cross-border capital flows. Residents also slowly learned that RMB assets were not devoid of exchange rate variables.

However, 811 never meant that the RMB would float completely freely.

China still practices a managed floating exchange rate system based on market supply and demand with reference to a basket of currencies. After 811, the central parity mechanism, currency basket, expectation management, and cross-border capital monitoring continued to exist. In December 2015, the China Foreign Exchange Trade System released the RMB exchange rate index, and the market began to discuss the RMB's changes against a basket of currencies more. Later, the central parity formation mechanism also experienced arrangements involving closing prices, a basket of currencies, and counter-cyclical factors.

Therefore, the mature understanding is not "the central bank has stopped caring".

A more accurate way to put it is that the RMB began to operate in a more authentic price environment. It will move, and it will also be managed. It needs to reflect market supply and demand, but it also cannot be dragged into a stall by pro-cyclical sentiment.

At the 2026 Lujiazui Forum, when talking about the modernization of China's financial markets, Pan Gongsheng mentioned the need to continuously deepen market-oriented reforms and further leverage the role of financial markets in price discovery and resource allocation. Applied to exchange rates, this statement still holds true.

Exchange rates are also prices.

If prices fail to discover information over a long period, the market will ultimately be forced to catch up through much uglier means.

811 allowed this lesson to start early.

The market later slowly understood: it's not that the RMB cannot move. It's that the RMB cannot move in a disorderly manner.

VI. Conclusion: The Renminbi Did Not Fall Out of Bed

What is most worth writing about the 811 Exchange Rate Reform isn't how much the RMB dropped over those few days.

What's truly worth writing about is that the market lost an illusion.

In the past, many people treated RMB stability as a free floor. Enterprises borrowed foreign debt on it, funds did carry trades on it, residents allocated assets on it, and traders wrote macro logic on it. On the day of 811, the floor shook a bit. Everyone then realized that it hadn't been cast in solid cement after all.

This isn't chicken soup, nor is it a trading call.

811 cannot be simplified to "RMB depreciation is good for exports". Nor can it be simplified to "the central bank abandons stability". At the time, an official in charge at the PBOC said this improvement to the central parity quotation was intended to enhance the marketization and benchmark nature of the RMB to USD central parity rate. Zhang Xiaohui said at the briefing that accumulated deviations had basically been corrected, and there was no basis for continuous RMB depreciation. Yi Gang said a market-oriented mechanism was more conducive to long-term stability.

These officials' words string together to form a very clear line.

The RMB needed a truer price. The market needed to pay the cost of adapting to that true price. The central bank needed to prevent this cost from turning into disorderly panic.

Pan Gongsheng's later statements on exchange rates added a voiceover to this history. In 2024, Pan Gongsheng said it was necessary to insist on the decisive role of the market in exchange rate formation, maintain exchange rate flexibility, and simultaneously strengthen expectation guidance to guard against the risk of exchange rate overshooting.

This is essentially the real textbook left behind by 811.

The market must learn to respect prices. The central bank must learn to manage expectations. Investors also need to admit that some of the money they made in the past wasn't entirely due to judgment; part of it was an anesthetic provided by the illusion of stability.

On the day of 811, the RMB didn't fall out of bed.

It just turned over in the night for the first time, scaring awake all the people beside it who had been pretending to be asleep.