Friday, August 14, 2015

Roger Farmer — Somebody at the PBC blinked

What’s happening and why? It's my guess that there are investors on the margin who are pulling money out of the Chinese market and moving it into the world capital markets. Those investors are betting against the valuation that the PBC is putting on domestic assets. The outflow of funds puts downward pressure on the RMB and if the PBC were to maintain its previous parity they would be obliged to sell their holdings of dollar denominated assets to support the currency.
Farmer apparently understands the accounting, but uses "outflow of funds."
The PBC blinked! But that's a good thing. They’ve chosen a domestic target over an exchange rate target and to make that work, the world needs to keep buying Chinese goods.
I have advocated a policy of Treasury and Central Bank intervention to stabilize domestic asset markets. What we are seeing in the Chinese case is that this policy is inconsistent with a fixed exchange rate. 
Roger Farmer's Economic Window
Somebody at the PBC blinked
Roger Farmer | Distinguished Professor of Economics , UCLA

1 comment:

Matt Franko said...

"investors on the margin who are pulling money out of the Chinese market and moving it into the world capital markets. "

WTF does this even mean?????

This is a prime example of the crap you have to put up with from economists. ..