China tells state banks to prepare for a massive dollar dump and yuan buying spree as Beijing's prior interventions have failed to stem its currency's worst year since 1994

https://www.reuters.com/markets/currencies/exclusive-chinas-state-banks-told-stock-up-yuan-intervention-sources-2022-09-29/ ^ | Sep 29, 2022 | Phil Rosen

[Jonty30]

The People's Bank of China has told major state-run banks to prepare to shed dollar holdings while snapping up offshore yuan, which has continued to fall despite prior interventions, sources told Reuters.

The scale of this latest effort to prop up the yuan will be big and could provide a floor to the Chinese currency, according to the report.

The amount of dollars to be sold hasn't been decided yet, but Reuters said it will primarily involve the state banks' currency reserves. Their offshore branches, including those based in Hong Kong, New York and London, were ordered to review offshore yuan holdings and check to see that dollar reserves are ready.

[nathanbedford]

Assuming the truth of this article and further assuming that when it suggests a massive Chinese effort to save the yuan it is not exaggerating the extent of the effort, one is prompted to ask: why? If we know the answer to this question we might have a better idea about the next question, will it work?

Most likely, the effort is designed to improve China's capacity to purchase raw materials abroad suffering because the yuan is now so weak. It seems that the domestic real estate crisis is not so relevant to a strong yuan and indeed a week yuan might help Beijing paper over the bank crisis being caused by the real estate crash

I leave to others more knowledgeable to tell me what the data tells them, whether the Chinese have enough muscle to salvage their currency. I don't know but I suspect they cannot do more than temporarily delay a trend.

Assuming that the Chinese intervention will be ineffectual we must ask, nevertheless, how much damage can they do to dollar-denominated holdings in the process? How much damage can they do to the dollar itself? Will everybody flee to gold?

Finally, believing that the international economic system is hopelessly top-heavy and vulnerable to any black Swan at all, are we at the cusp of the deluge that so many of us fear will occur probably just after Christmas?

[SaveFerris]

LOL 🤣😆

[zeestephen]

My impression has always been that China vigorously controls the US Dollar and Yuan trading spread.

I cannot even find a US Dollar-Yuan quote on the CNBC currency page.

According to Google, one US Dollar has bought 6.3 to 7.2 Yuan for the last FIVE years - currently trading for 7.12 Yuan.

Compare that to the strength of the US Dollar against a basket of foreign currencies (Euro, Yen, etc.)...

Since May 2021, the USD is up 25% (0.90 to 1.12) against the foreign basket!

[EBH]

The Economic Ninja said this was going to happen and faster than anyone expects. I do not think even he expected this right now...

https://youtu.be/5mXQtjmhz2s

The economic ninja talks about inflation and how the worlds economy is crashing.

[Jonty30]

I do know that China has peaked in population about ten years ago and isn’t have children in replacement numbers. That alone, as China ages, could topple the country economically.

China will not admit their situation, goes, is pretty dire, because their one-child population is now cultural and it’s going to be nearly impossible to get them to get women to want more children when their desire is to go in the workforce.

[nathanbedford]

To speculate about the cause, rather than the one child policy generating present day demographic/economic woes, I'm inclined to think that the real estate debacle is the source of the problem, no doubt exacerbated by the shutdowns which may or may not be caused by Covid, more likely caused by a banking crisis or an inability to pay for raw materials or an inability to master supply chain outflows.

I don't know how much foreign debt the Chinese have denominated in dollars in excess of American bonds they hold denominated in dollars but that data might tell us something.

[Jonty30]

I don’t know anything about China’s foreign debt holdings or anything like that.

However, what I do know is that if you don’t have a growing population, the ratio of dependents grow against the numbers that can support them. That in turn creates a situation where people don’t have children because their societal obligations makes children unaffordable. This is why Europe is having to import people, because the ratio of their productive population vs their dependent population has shrunk, leaving the productive population to have to support more people per person.

As far as real estate goes, a;; these companies built buildings, with the expectation of people inhabiting them. However, those people are not showing up to buy apartments, so all these companies that built all these apartments through debt financing can’t afford their debt.

I’m not saying there aren’t other factors, of course their are. However, demographics is the primary driver of economics. You can almost plan your investments by the demographics of your country.

[fella]

I’ve got a stack of Zimbabwe $100,000,000 bills that I use for bookmarks.

[Samurai_Jack]

“This part is fixable, if the US feds were willing to remove dollars from the system as they come in.”

Yep, and this is the biden administration. They’ll do exactly the opposite of what will fix the problem.

[nathanbedford]

I'm not sure it is a question of political will, even assuming the Democrats to have any, I fear it could be a question of knock-on sovereign debt issues.

With the Japanese defending the yen, the British defending silver, and now the Chinese defending the yuan, there is obviously tremendous pressure around the world on these economies evidencing itself in pressure on the currency.

[FarCenter]

Yuan Bears Bet China Is Powerless to Fight the Mighty Dollar

Yuan bears are on the prowl, emboldened by a belief that policy makers in China can do little to battle the surging dollar.

The yuan strengthened on Thursday following a report that China’s central bank had asked major state-owned banks to be ready to sell dollars for the local unit in offshore markets to rein in the Chinese currency’s decline. It had earlier weakened even after Wednesday’s verbal warnings from the People’s Bank of China, which cautioned against speculation on the currency and said it had “plenty of experience” in fending off shocks.

The comments came after the central bank made it more expensive to bet against the yuan in the derivatives markets. A jump in the required ratio to 20% as of Wednesday, from the previous 0%, increased the cost of purchasing dollars in the currency forwards market.

Still, derivatives traders are betting on further declines — the options market sees a more than 50% probability that the currency will drop further to 7.3 against the dollar in the offshore market in the next two months.

The cost of hedging again yuan losses soared, yet well below 2020 peaks

Three-month risk reversals, which measure the cost of hedging against offshore yuan losses, soared over the past few days and briefly exceeded 1.5% on Wednesday. Still, the gauge remains lower than its 2022 high reached in May and well below the peaks set two years ago at the height of the global pandemic.

“There’s not much else the authorities can do at this stage apart from really trying to enforce capital controls more aggressively,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd. “They don’t have a very strong hand at this stage vis-a-vis market forces.”

https://www.bloomberg.com/news/articles/2022-09-28/yuan-bears-bet-china-is-powerless-to-fight-the-mighty-dollar

Its a contest between PBOC and external currency traders and speculators. Is there a Soros out there trying to break the Yuan?

[moovova]

[bert]

Biden has nothing to do with the economic collapse in China. That continuing catastrophe is a purely Chinese home grown phenomenon.

Some western analysts give China only three weeks or so before total economic collapse.

This article gives credence to those thoughts

[gundog]

[EEGator]

[DesertRhino]

Yeah I know the Chinese problems are bad. But it’s very very bad for us that the world is ending the dollar as the world reserve currency. That was a position of trust and respect… and DC turned it into a weapon externally and as license to conduct an orgy at home.
I do think hard times are coming.

[Vaduz]

Yep it’s going to put a crimp on some Hunters deals for a bit.