- With China Facing Currency, Liquidity Crises, Ex-PBOC Official Urges Use Of “Nuclear Option”
by Tyler Durden, www.zerohedge.com
With the PBOC fighting tooth and nail to slow outbound capital flight, which according to Goldman has reached $1.1 trillion since August 2015, and which these days mostly means keeping the Yuan from depreciating to new all time lows below 7 Yuan to the Dollar, the Chinese central bank may have its work cut out for it in the immediate future. The reason is that, as Bloomberg reminds us, the first day of 2017 is when an annual $50,000 quota to convert the yuan into foreign exchange resets, stoking concern there will be a rush to sell the local currency.
With tax payments and a regulatory assessment also tightening liquidity in the money market toward year-end, manifesting itself in soaring unsecured funding rates such as the overnight repo hitting 33% as noted yesterday, paralyzing both the overnight…
Ultimately, trying to keep a lid on the Yuan is a game China will lose, and some are already preemptively admitting defeat. Among them is Yu Yongding, a former academic member of the PBOC’s monetary policy committee, who overnight urged his former PBOC colleagues to engage the “nuclear option” – a sharp, one off devaluation similar to what China did in August of 2015.
In emailed comments to Bloomberg, Yongding said that China has a window from now to President-elect Donald Trump’s inauguration to halt FX intervention and let yuan depreciate to its equilibrium level.
Will the PBOC stun everyone and unveil a surprise devaluation in the next three weeks? We don’t know, but according to bitcoin, which has soared by 20% in just the past week, someone does appear to “know” something, and if they are right, a devaluation is precisely what the Chinese central bank has in store.