Chinese Economics Thread
- Thread starter Norfolk
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It doesn't exactly work that way. When you make statements like that, you need to consider the different sides of the transaction. Lets break down the second statement first - "use dollar reserve to buy RMB" - that's actually 2 actions:
1) sell US dollar - who are they selling the US dollar to?
2) to buy RMB - who are they buying RMB from?
Is China's central bank(PBOC) selling the USD FX reserves to Chinese consumers/entities in the China? If so, that means Chinese entitles will pay in yuan from their domestic yuan accounts, therefore you reduce the amount of yuan in circulation within China because they're buying back their own currency, which has the effect of raising rates.
Are they selling the USD to the international market? If so, that means the PBOC will be receiving something back - will it be yuan? Will it be EUR? Gold? If it's yuan, theres a few problems with that - 1) it's not freely convertible which leads it not being 2) internationalized to a large degree which means 3) there's not much yuan out there relative to other FX reserves held by other central banks which leads to the problem of 4) selling lots of USD for yuan will spike the yuan exchange rate, hurting exports.
Also, how do other countries get yuan in the first place? they have to "buy it" by exchanging (sellling) goods/services to China for yuan, but that means China will have to be a net importer instead of the manufacturing and exporting powerhouse that it is. They can also sell USD/EUR to China, but that defeats the purpose of the 2nd premise.
So back to the first statement - how does the PBOC slash interest rates while maintaining the exchange rate? they need to print yuan, now we're back to square 1 since it conflicts with the 2nd statement.
It's very basic economics，or should I say economics 101. When the exchange rate of your currency is falling，you‘d have to use foreign reserves to buy your currency in order to maintain exchange rate. That's exactly what happened in 1997 Asian financial crisis，some Asian countries wants to maintain the value of their currency but eventually they run out of foreign reserves，then the value of their currency started free fall. It is what's happening in Turkey as we speak
As for where do other countries get Yuan？There is something called Yuan credit line，Russia has it. It's basically is credit given by China to other countries nominated in yuan，they can use it to purchase goods from China. Most of countries accept this arrangement precisely because China is an exporting powerhouse，they all need to buy something from China.
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One probable reason of recent Yuan fixing is to keep 10Y CGB competitive vis-a-vis 10Y T note as last month saw some bond outflows. PBoC would very much like to have foreigners buy into CGB in Yuan denomination, as to finance the growth with local currency, call it a version of MMT with Chinese characteristics. Basically a reverse image of American trade deficit. So most likely the fixing range would stay in 6.40 - 6.50 band.
Good. This might force people to stop thinking about GDP (nominal). With a single statement the PBOC can "change" China's gdp by billions or even a trillion dollars.
In fact, I just pay attention to GDP (PPP) for China
antiterror13
Brigadier
Where is the slave labour ? maybe stealth slave labour
Actually I haven't heard for a while now of the narrative of slave labour and torture in Xinjiang ? I kind of miss it
broadsword
Brigadier
Actually I haven't heard for a while now of the narrative of slave labour and torture in Xinjiang ? I kind of miss it
The UN human rights group may want to check the engine compartments for Uighur power.
Where is the slave labour ? maybe stealth slave labour
China is violating the rights of robots!