Market Expectation Will Continue to Drive the Yuan Downward

MARKET EXPECTATION WILL
CONTINUE TO DRIVE THE YUAN
DOWNWARD
By www.ForexConspiracyReport.com

http://www.forexconspiracyreport.com/market-expectation-will-continue-to-drive-the-yuan-downward/
China has been burning through its
currency reserves in order to support
the Yuan.

The experiences of Russia and
Brazil tell us that market expectation
will continue to drive the Yuan
downward and that China should
hold on to its currency reserves as
its currency falls.

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Bloomberg discusses why China
should stop burning up its
currency reserves.

China has wiped out about a quarter
of the world’s heftiest foreign-
currency stockpile over the past 18
months in its quest to keep the yuan
stable.

According to Commerzbank AG,
such intervention is futile.

Data Tuesday showed China’s
foreign reserves slipped below $3
trillion in January, the first time
they’ve breached that
psychologically potent level in almost
six years.

Yet the experiences of some fellow
BRICs show that drawing down the
stockpile will probably have little
effect on the currency’s long-term
fate, Hao Zhou, Commerzbank’s
Singapore-based senior emerging-
markets economist, wrote in a
research note late Tuesday.

The authors point to Russia and
Brazil of examples of how Forex
fundamentals and the market will
eventually have their way.

While efforts by Russia and Brazil in
recent years might have cushioned
the blow of currency declines, they
couldn’t change the market’s
dynamics.

In Russia’s case, a collapse in oil
prices and the imposition of
economic sanctions over the Crimea
crisis proved more powerful drivers
than the sale of a third of the
country’s foreign-currency hoard
between April 2013 and March 2015.

The ruble fell more than 50 percent
versus the dollar in the period.

Brazil at least used currency swaps
instead of spending down its
reserves.

Where is the stopping point for the
Yuan and if China does not change
its policy where is the stopping point
for Chinese currency reserves?

How Far Will the Yuan
Fall?

If we believe that market expectation
will continue to drive the Yuan
downward how far will it fall?

Reuters says that there is
more Yuan fall and capital
outflows in the next year.

The yuan could fall by five percent in
2017, and anything more than that
will result in greater capital outflows,
former People’s Bank of China
(PBOC) adviser Li Daokui said.

The PBOC could spend an additional
$200 billion to $300 billion to achieve
its goal to control currency moves,
Li, who now teaches at the Tsinghua
University, told the Reuters Global
Markets Forum on the sidelines of
the World Economic Forum.

Li also said he expected growth to
be the top priority for the Chinese
government, over reforms, this year.

The author’s belief is that China will
spend reserves to protect the Yuan
from falling more than 5% during
2017.

The problem for China is that the
market will have its way and
spending reserves will not turn the
Yuan around on a permanent basis.

That will require systemic changes in
how China’s economy operates.

And in the land of managed
capitalism, where Communist
leaders had grandparents who were
on the long march and were cronies
of Chairman Mao, that will be hard.

First and foremost the Chinese
leadership wants to stay in power
and if that means spending all of
their currency reserves, so be it

Market Expectation Will Continue to Drive the Yuan Downward

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Market Expectation Will Continue to Drive the Yuan Downward