The 9 percent drop in global equity prices in the first two weeks of 2016 is certainly alarming, even for those of us who believe that the outlook for the world activity has not deteriorated much recently. The fundamental cause is the same as it was last August – a clash between a severe loss of credibility in Chinese economic policy and a Federal Reserve that still seems determined to continue tightening US monetary policy without much regard to international risks and a slowing domestic economy (see the hawkish Bill Dudley speech on Friday). Oil prices are also playing a part, but only a bit part, in my view.

The key question is whether China can restore confidence in its exchange rate policy, not least among its own citizens. For as long as a renminbi devaluation of unknown size continues to overhang the markets, an abatement in capital outflows, and a return to stability, seems difficult.

It is even possible that the event that markets most fear – a controlled depreciation of 10 per cent or so – might be the only way of restoring calm, if accompanied by other reforms. Until the renminbi is deemed by the global financial system to be at a sustainable level, fear of disruptive change will dominate sentiment.