• 367 days Will The ECB Continue To Hike Rates?
  • 368 days Forbes: Aramco Remains Largest Company In The Middle East
  • 369 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 769 days Could Crypto Overtake Traditional Investment?
  • 774 days Americans Still Quitting Jobs At Record Pace
  • 776 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 779 days Is The Dollar Too Strong?
  • 779 days Big Tech Disappoints Investors on Earnings Calls
  • 780 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 782 days China Is Quietly Trying To Distance Itself From Russia
  • 782 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 786 days Crypto Investors Won Big In 2021
  • 786 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 787 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 789 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 790 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 793 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 794 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 794 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 796 days Are NFTs About To Take Over Gaming?
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  1. Home
  2. Markets
  3. Other

China Openly Pledges to Sink the Yuan vs. the Dollar

China Drops Dollar Peg

If China was really serious about doing what every major country in the world does, it would float the yuan.

On Thursday, I saw this MarketWatch headline: China Serious about Dropping Dollar Peg.

I was totally unimpressed after reading the article.

China will not do the one thing it has needed to do for decades: Let the Yuan float. China still insists on setting artificial pegs that the market openly mocks.


China Pledges to Sink the Yuan

DAVOS, Switzerland--A senior Chinese official Thursday affirmed China's intention to decouple its currency from the U.S. dollar, while the head of the International Monetary Fund urged Beijing to improve communication with markets about changes to its foreign-exchange regime.

For years, China has hitched the yuan's value to U.S. dollar, but its central bank signaled in December that it would break the peg and instead manage the Chinese currency against a basket of 13 currencies.

"We're serious about the basket approach," said Fang Xinghai, a senior economic adviser to the Chinese leadership, at a panel organized by the World Economic Forum here Thursday. "It's a decided strategy."

With a crawling peg, the yuan has appreciated with the strengthening U.S. dollar, hurting Chinese manufacturers while the economy is weakening. Decoupling the yuan from the dollar could help Beijing's effort to rekindle growth.

"There's some catch-up to do" when it comes to adjusting the yuan's value against the dollar, said Mr. Fang, a director-general in the Office of the Central Leading Group on Economic and Financial Affairs, which functions like the White House's National Economic Council. "Once we're done with it, the yuan will be stable again," he said.


Stability Nonsense

The entire notion that a peg creates stability is complete nonsense. But don't listen to me. Instead, ask Switzerland.

China's last peg worked, until it didn't. That peg did help China's export model as long as the US dollar was sinking.

Now China pledges to peg to a basket. In other words, China wants to sink the yuan. Supposedly this will create stability.

To reach stability, China openly admits instability.


Reserve Currency Nonsense

People keep telling me the Yuan will soon be the world's reserve currency. I have openly mocked such pronouncements for a decade. I mock such pronouncements again today.

China's bond markets are neither big enough nor liquid enough to handle the task. And China still cannot get off currency pegs.


China Drops Currency Peg It Cannot Defend

China Dropped the dollar peg. To what? To a floating peg!

Why? Because China cannot defend the existing dollar peg. China disguised that fact with a "serious" announcement pretending to be something else.


Price of Stability

Expect huge volatility. It's coming.

Instability is the price we have to pay for stability.

 

Back to homepage

Leave a comment

Leave a comment