The Chinese currency is on the verge of collapse. I estimate that the PBOC has only about 200 to 300 billion US dollars worth of hard currency to defend the renminbi from collapse once hedge funds that are circling like sharks smell blood. On all accounts, the G20 is for the Xi Jin PIG Dictatorship "the knell that summons them to heaven or to hell"! Small wonder Trump felt empowered to belittle "the Emperor Xi" not to show up at the G20. Now Xi is damned if he does, and destroyed if he doesn't - because if he shows up, he will kowtow to King Trump and the US dollar; and if he does not, his Heavenly Empire economy will be consigned to the dustbin of history in very short order! Enjoy this story from the Financial Times!
Why ‘cracking seven’ is a big deal for China’s currency
The next significant test for the renminbi will be this
month’s G20 meeting in Japan Share on Twitter (opens new window) Share on
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Save to myFT Topic Tracker Hudson Lockett in Hong Kong and Robin Harding in
Tokyo 2 HOURS AGO Print this page6 Why is ‘cracking seven’ a big deal for
China’s currency? If China’s renminbi slips past Rmb7 a dollar — “cracking seven”
in trader talk — it would take the currency to a level of weakness not seen
since the depths of the global financial crisis 11 years ago. It would also
breach a widely recognised floor that China’s central bank has previously
defended during bouts of sharp depreciation last year and in 2016.
The defence mounted in 2016, in which China was forced to
burn through some of its foreign exchange reserves, spending as much as $107bn
in a single month, followed a shock devaluation from the previous August that
marked the currency’s biggest one-day drop in decades. While it delivered a
shot in the arm to the country’s export-led economy, it spurred substantial
capital outflows and drew accusations of currency manipulation from critics in
Washington and put it under regular scrutiny from the US Treasury Department.
Fast forward to this year, and following a tumble in early May after US
president Donald Trump threatened higher duties on Chinese goods as part of the
11 month-long Sino-US trade dispute, the renminbi has largely halted its fall
in the lead-up to the G20 summit in Osaka at the end of this month. The meeting
is probably the final chance for the two countries’ leaders to thrash out a
deal that would avoid the US levying 25 per cent tariffs on virtually all goods
imported from China.
How does China manage the renminbi? Since 2015 the onshore
renminbi exchange rate has been allowed to move 2 per cent in either direction
of a daily trading band midpoint set each morning by the People’s Bank of
China. When Mr Trump threatened higher tariffs in May, the midpoint soon
softened enough to push the weak end of the trading band past Rmb7 per dollar,
where it remains, ostensibly permitting the currency to fall past the threshold
at a moment’s notice. Beijing also permits a smaller pool of the currency to
trade in Hong Kong, part of a drive to internationalise the renminbi. The
offshore exchange rate is not limited by the trading band and is therefore
subject to the sway of international market forces.
But while a gap between the two rates has opened in recent
weeks there is far less daylight between them now than was seen following the
shock devaluation in 2015. On Tuesday the PBoC announced it would issue
renminbi debt in Hong Kong, prompting speculation it was seeking to sop up
liquidity there and defend the currency by making it more difficult for
international investors to bet against. But Mansoor Mohi-uddin, senior macro
strategist at NatWest Markets, said this was unlikely to have been the main
goal of the issuance, since onshore demand for the dollar in China was probably
driving markets, rather than offshore short selling. What does the Trump
administration think?
The US Treasury Department again declined to label China a
currency manipulator last month, although it expressed “significant” concerns
over the exchange rate, then closer to the seven level than at any point since
2008. But on Saturday, at a meeting of financial ministers and central bank
governors in Osaka, ahead of the G20 meeting, US Treasury secretary Steven
Mnuchin appeared to suggest that a failure to intervene could itself be viewed
as a sort of manipulation. “Sometimes if the market expects intervention and
you’ve been intervening for a long time to support a currency, and you don’t
intervene, that could also have a big market impact,” he said.
Is seven a matter of if, or when? Although the renminbi hit
a six-month low against the dollar on Monday, many strategists are sceptical it
will crack seven before the G20 and on Tuesday the onshore rate was 0.2 per
cent firmer at Rmb6.913 a dollar. Christy Tan, head of markets strategy and
research for Asia at NAB, said the PBoC was unlikely to use devaluation as its
weapon of choice when dealing with trade issues. The central bank has not
forgotten the hard lessons learnt from the capital outflows and international
criticism it weathered in 2015. But she added that if no deal was struck at G20
and Mr Trump did go all-out with 25 per cent tariffs on the remaining $300bn in
Chinese imports, “seven will break through in very short order”.
Recent comments from Chinese officials have laid the
groundwork for that, downplaying the importance of the seven threshold. On
Friday central bank governor Yi Gang said no hard limit existed for the dollar
exchange rate. “I don’t think this is an important question,” Mr Yi said in an
interview with Bloomberg News. “I don’t think along the mathematical scale any
one number is more important than the other number,” he added. Mr Yi’s
attention is arguably focused elsewhere. Homin Lee, Asia macro strategist at
Lombard Odier, said that the key lower bound for the renminbi was not seven per
dollar, but rather 92 — that is, the implicit lower bound for the CFETS
Renminbi index, which measures the currency against a basket of peers. The
latest weekly reading for the gauge left a bit of breathing room yet at just
over 93. “They have already shown willingness to defend this implicit lower
bound, and if they remove that lower bound . . . then there’s no obvious anchor
for the markets,” Mr Lee said.
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