Monday Madness – Renzi Resigns, Trump Declares War on China (Currency)

Oh my God!  

Shame on any editor who pretends politics shouldn't be discussed in financial posts – their cowardice has led to the election of a man who doesn't even understand that China has been propping UP their currency,  at the insistence of the US and other nations, and have lately been REMOVING their supports and the devaluation of the Yuan is what the REAL market values are currently showing.  

In May of last year, in fact, the IMF officially stated the Yuan was no longer undervalued.  Since 2015, the People’s Bank of China, the central bank, hasn’t been keeping the currency cheap. Rather, it’s been defending the yuan, drawing down its foreign-exchange reserves in order to keep the value aloft. 

Why would it do that, knowing that might hurt the export sector, which provides a huge share of jobs? In the last few years, demand for the yuan has come less and less from trade, and more from investment flowing into China to speculate on the currency’s appreciation against the dollar—a self-reinforcing phenomenon. Those inflows help prevent cash squeezes in the banking system, and push down borrowing costs. Letting the yuan’s value drop might drive that investment out of China, draining cash from the financial system dangerously fast.

Is it too political to point out that the President-Elect of the United States of America COMPLETELY WRONG in his currency statements.  Trump isn’t just wrong about what Beijing is doing, he’s wrong about the impact it might have. This year, even though the yuan depreciated against the dollar, Chinese exports have not picked up thanks to the weak global economy. “It has become less effective and unnecessary for Beijing to use a cheaper yuan to boost exports,” noted Shuli Ren of Barron’s recently, because “the pie is getting smaller and competitive easing can only get you so far.”

Recently, with China’s foreign currency reserves falling to the lowest since 2011, the Chinese central bank are believed to have sold the dollar to ease yuan’s decline, in an attempt to curb record capital outflows—doing exactly the opposite of what Trump claims.  Should I keep quite about this idiocy because this is a financial newsletter and Trump has armies of letter-writing fanatics that…
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