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China removes the USD peg


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Would they still want to purchase as many U.S. treasuries as in the past - I don't think so, more QE coming for the reserve currency - glad i'm not a retiree relying on their savings to get them through, then again maybe they have the midas touch and know how to protect themselves.
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  • 2 months later...
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Once again and very quietly China is allowing its currency to appreciate against the USD.


This followed the weekend delivery of China's inflation, retail sales and bank lending

CPI up 3.5%,PPI up 4.3%.


Geithner is going to come under intense scrutiny about the Yuan/USD on Thursday in the house of Reps as China forges ahead and the US is mired in Stagflation.


The FOMC meets next in 7 days time, at which point Helicopter Ben may HAVE to flood the world with even more USD's, little wonder we suffer a rising AUD.


Once again ASX Commodities seem the obvious and immediate beneficeries with maybe PM's being the outperformers.


2 charts... Yuan/USD short term, then Yuan/USD long term---horrifying in retrospect.



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  • 3 weeks later...

Does the US understand what it is doing by threatening China with trade sanctions?


The USD has been dropping like a stone for days, whilst the Chinese allow their currency to drift higher--weekly chart enclosed--the bit to notice here is how much the Yuan has already very quietly moved the the last six weeks.


If Congress rams trade sanctions through, China could react violently causing Forex chaos, heaven knows the AUD is causing mayhem BEFORE it goes through parity with the USD.


Kevin 07 may have more to do than he thought for!!


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  • 6 months later...

The Long Easter Break is an ideal moment for China to make a big currency move?



A "shift in rhetoric" indicates that China may be on the verge of allowing faster gains by the yuan to damp import costs that may fuel inflation, Capital Economics Ltd. said.


"Several senior policymakers have signaled in the last few days that China will allow the renminbi to strengthen in order to dampen imported price pressures," said London-based economist Mark Williams, a former adviser on China to the U.K. Treasury. "This would be a significant departure -- the exchange rate is usually viewed narrowly as an instrument of trade policy rather than as a monetary policy tool."


Yuan forwards strengthened yesterday after a central bank adviser said China will not rule out a one-off revaluation of the currency.


Xia Bin said that while the yuan should appreciate gradually in the long term, and current conditions arenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t conducive to overly fast gains, a one-off revaluation ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“canÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t be ruled out.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ His comments were in an online interview on Sina.com.





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  • 4 months later...

(Reuters) - The yuan may be convertible under China's capital account by 2015, said Li Daokui, an adviser to the country's central bank, adding to talk that the freeing of China's capital markets may happen sooner than most thought





If the EURO now implodes, followed by utter financial chaos worldwide, China could make that move soon.

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  • 4 years later...

I am seeing increasing chatter that China is likely to devalue its currency by 10-15%. Examples here:






With Prez Xi now in the US - as an aside it must be galling for him to have to play second fiddle to the rock-star in Papa Francisco (it could only be worse if he was trailling after rock-star Dalai Lama) - I am sure nothing remarkable will happen but I suspect all bets are off once he gets back to Beijing.


It reminds me that soon after coming to power Deng Xiaoping did several overseas trips (but after that immediate rush never any more) including one to the US (for the famous photo-op of the little man under the ten gallon hat). As it turns out possibly the main reason for his visit to the US was to run past the yanks the idea of a major incursion by China into Vietnam in response to the Russians intending to set up military bases in Vietnam. Deng wanted to make sure that the yanks would stand behind China just in case the Russians threatened to go nuclear. When he got back China went ahead and even though operationally Vietnam gave the Chinese a bloody nose strategically the move paid off as Russia backed away from SE Asia and invaded Afghanistan instead (and the rest is history).


Given that Mr Xi is very much a strong nationalist I am not sure that he would be running the idea of a one-off 10% devaluation past the Americans for their views or even flagging it as a possibility. But I reckon once he has the US trip out of the way then he will attempt to do something decisive to stop the capital flow and provide support to China's manufacturing sector.

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Here is another article that jumps on the bandwagon of the yuan heading for a major devaluation.




Note the fund manager on which the article is based apparently placed his bets in 2010, failed to have a big payday from the gamble and then pulled out from the wager in June (right at the top of the sharemarket bubble as it turns out) so at best the dude was perhaps early in theory, but clearly wrong in practice.


And any suggestion that the wheels are going to fall off China is imo silly: like the US, China is such a massive entity that even if things turn dire in certain parts of its economy there will be other parts that will compensate. In my view the real risk is if China sneezes smaller, less balanced economies that rely on China will come down with the flu ... Australia with its over reliance on mining and real estate is a prime candidate. Any devaluation of the yuan will rattle Australia imo and we will rely on our primary shock absorber ie a freely floating currency to help us through.

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And here is even more discussion about the yuan being overvalued.




Note the link to the article where some of the political loonpond in the US are still arguing that the yuan is undervalued against the USD but the charts in the Econbrowser article suggest that in fact the yuan is currently substantially overvalued against the greenback and also on a trade weighted basis.


It would make sense for the US Federal Reserve to hold off increasing interest rates - as it has just done - if there were any possibility that the Chinese were about to drop the yuan another notch or two. Had the Fed increased rates and the Chinese had still gone ahead with a substantial devaluation the combination would have created havoc around the world. It could be argued that even with the Fed sitting pat if the Chinese devalue by say 10% there will still be seismic ramifications in its trading partners and in emerging markets generally. Paul Krugman talks about the flow-on effects of troubles in China, though not as a result of a devaluation but more on the economic downturn that the Citigroup's chief economist has talked about.


The link to the Krugman article is embedded here:



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