The Renminbi’s Bid for Freedom — Yu Yongding

The recent decision by the People’s Bank of China to let the renminbi fall below CN¥7 per US dollar has little to do with trade or currency wars. Rather, it represents an important step by the PBOC toward reforming China’s inflexible exchange-rate regime.…

Important because of who is saying it.

Project Syndicate
The Renminbi’s Bid for Freedom
Yu Yongding, former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006

Zero Hedge — China Fixes Yuan Weaker Than 7 For First Time In Over 11 Years

For the first time since March 2008, PBOC fixed the yuan weaker than 7 per USD....

Zero Hedge

China Fixes Yuan Weaker Than 7 For First Time In Over 11 Years
Tyler Durden

See also at ZH

Ray Dalio Tells Investors 'Bet On China' As The Next Global Empire

SCMP — Is China about to let the yuan weaken below seven to the dollar?

The CNY has already breached 7. The question now is whether China is ready to let drop stand, or even allow the currency float. This article provides background that most Western articles announcing the move don't. China has apparently decided to pursue its national interest rather than let the exchange rate dominate policy.

SCMP
Is China about to let the yuan weaken below seven to the dollar?

Also relevant

Sputnik International
'Chinese Will No Longer Give Priority to Controlling Trade War Scale' - China State Media

Zero Hedge
Currency War Begins: Chinese Yuan Crashes Past 7 To New Record Low As Global Markets Tumble
Tyler Durden

The US is also putting the push on to destabilize China politically as well as economically.

NEO
Washington’s Major Push for Xinjiang

Jean Perier

Reuters
Hong Kong leader says protests are challenging China's sovereignty

The Strait Times
China trying to reshape Indo-Pacific, says US

Zero Hedge — Something Just Broke In The Chinese Yuan

When is China going to follow Russia and float?

We argue that policymakers in China are now going to be more accepting of USD/CNY appreciation through 7: years of regulatory measures should make outflows more manageable, easier monetary policy will add upside pressure and a weakening FX is the natural means of offsetting tariffs....

Zero Hedge
Something Just Broke In The Chinese Yuan
Tyler Durden

Gene Frieda — China’s Difficult Balancing Act

China needs to keep growth high enough to maintain social stability, but also must preserve external stability via the renminbi’s exchange rate. How China manages its currency during its economic policy shift could have important global consequences.

China is not sovereign in its currency since it pegs to the dollar. Currency sovereignty requires floating the rate whereas as peg sets a fixed rate. This means that China domestic policy is constrained by have to manage the exchange rate within the corridor of the peg.

China needs to float the RMB to return to currency sovereignty and manage its economy instead of managing the exchange rate. As Russia did when hit by US sanctions.

Project Syndicate
China’s Difficult Balancing Act

Gene Frieda | executive vice president and global strategist for PIMCO

Dean Baker — Does China's 2.5 Percent Inflation Rate Really Explain the Decline in the Value of Its Currency Against the Dollar?

The vast majority of economists believe that the Fed's asset holdings keep down U.S. interest rates. It is inconsistent to believe that the Fed's holdings of U.S. assets keep down interest rates here, but China's holding of foreign assets does not keep down the value of its currency.

Beat the Press
Does China's 2.5 Percent Inflation Rate Really Explain the Decline in the Value of Its Currency Against the Dollar?
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

Asia Times — German central bank to add RMB to currency reserves

Germany looks to the future. Uncle Sam won't be pleased.

HSBC chief executive Stuart Gulliver, speaking at the same conference in Hong Kong, said that the Belt and Road Initiative (BRI) will increase the usage of RMB even further.

China’s central bank announced new measures earlier this month to encourage cross-border yuan transactions in support of BRI projects.

Asia Times
German central bank to add RMB to currency reserves: Follows ECB’s move to include China’s currency last year

Andrew Batson — SDR inclusion as commitment device

Perhaps another way of putting this is that SDR inclusion is a commitment device. In addition to the practical concerns raised by Zhou, there would also be reputational costs to reversing exchange-rate and capital-account reforms. Since SDR inclusion is contingent on the IMF’s determination that the renminbi is “freely usable,” it could conceivably be reversed if the currency were to stop being freely usable. What future Chinese central bank governor will want to see headlines screaming “IMF expels renminbi from SDR”?

Of course, China over the past year has in fact been de-facto tightening capital controls by stepping up scrutiny of overseas M&A and slowing down approval of foreign-exchange transactions. But it has done so largely by using its regulatory discretion rather than changing formal rules. So perhaps the commitment device is working some....

Andrew Batson's Blog 

SDR inclusion as commitment device
Andrew Batson

Zero Hedge — Yuan Tumbles As Moody's Downgrades China To A1, Warns On Worsening Debt Outlook

Zero Hedge
Yuan Tumbles As Moody's Downgrades China To A1, Warns On Worsening Debt Outlook

Tyler Durden

OANN — China should stop intervening in FX market and let yuan float: researcher

China should stop intervening in the foreign exchange market, devalue the yuan and let it float freely to restore stability, a senior researcher at a government-backed think tank said.
Xiao Lisheng, a finance expert with the Chinese Academy of Social Sciences, made the remarks in an article on Monday in the official China Securities Journal amid a growing debate among the country’s economists on whether authorities should let the closely-managed currency trade more freely.

The yuan lost 6.6 percent against the dollar last year, the biggest annual loss since 1994.
“The more the government delays the release of depreciation pressure, the greater the impact and destructive power of the release of depreciation pressure will be,” Xiao wrote.

The authorities should “let the yuan exchange rate have a one-off adjustment to realize a free float” of the currency, he said.…

Cut it loose.

One America News Network
China should stop intervening in FX market and let yuan float: researcher

Reporting by Winni Zhou and John Ruwitch; Editing by Kim Coghill

Cecchetti & Schoenholtz — China's Awkward Exchange Rate Regime

Float that sucker.

Perhaps the best way for China to counter President-elect Trump’s outdated claims of manipulation would be to let the currency float. In the short run, however, that would almost surely trigger a plunge versus the U.S. dollar. Given China’s strong penchant for market intervention—including its unfortunate role in the 2015-2016 stock market boom and bust—Chinese savers may simply rush for the exit, fearing that anxious policymakers will slam the gate quickly.

In the end, there is no way to make such a fixed exchange rate regime less awkward without risking a bout of instability. Over the long run, capital controls won’t solve the problem; instead, they will further diminish the efficiency with which the country’s savings are used. For a large economy like China that is integrated into the global trading system, the global norm is a floating currency. Absent a trade war (and perhaps even with one), that’s still probably where we are headed within a few years. And, it’s increasingly a question of when, not if.

Money and Banking
China's Awkward Exchange Rate RegimeStephen G. Cecchetti, Professor of International Economics at the Brandeis International Business School, and Kermit L. Schoenholtz, Professor of Management Practice in the Department of Economics of New York University’s Leonard N. Stern School of Business
ht Mark Thoma at Economist's View

Cecchetti & Schoenholtz are the authors of Money, Banking and Financial Markets.

Zero Hedge — Yuan Collapse Sends China Physical Gold Premium Soaring To 3-Year Highs

Float it for heaven's sake.

Zero Hedge
Yuan Collapse Sends China Physical Gold Premium Soaring To 3-Year Highs
Tyler Durden

Eswar Prasad — Trump’s Chinese Scapegoat

A charitable interpretation is that, as a tough and pragmatic businessman, Trump is simply using threats to stake out a strong bargaining position, and that sense and reason will ultimately prevail. But the longer Trump’s incendiary rhetoric continues, the higher the risk that it will produce real-world consequences....

Project Syndicate
Trump’s Chinese Scapegoat

Eswar Prasad | Professor of Trade Policy at the Dyson School of Applied Economics and Management, Cornell University, senior fellow at the Brookings Institution, and author of Gaining Currency: The Rise of the Renminbi

Caixin Online Transcript — PBOC Governor Zhou Xiaochuan Interview

Today we have some excerpts from the man who manages one of the world's most important currencies, Zhou Xiaochuan, governor of the People's Bank of China.

Caixin Online
Transcript: Zhou Xiaochuan Interview

Andrew Sheng and Xiao Geng — China’s Transparency Problem

China wrestles with the impossible trinity of a fixed exchange rate, sovereign policy, and free capital flow.

If the Chinese are smart, they will just say that the speculative pressure of US "capitalists" is forcing their hand and although they were aiming at a smooth transition, facts of the ground compel them to float the currency. Then let the ROW compete with a floating RMB and see how the free marketers like that. Prediction — they would be squealing.

Project Syndicate
China’s Transparency Problem
Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, former chairman of the Hong Kong Securities and Futures Commission, and currently an adjunct professor at Tsinghua University; and Xiao Geng, Director of the IFF Institute, professor at the University of Hong Kong, and a fellow at its Asia Global Institute

Yu Yongding — A Floor for the Renminbi

In early 2014, after nearly a decade of trying to curb expectations of continued currency appreciation, the People's Bank of China finally succeeded, thanks to forceful market intervention. Unfortunately, the PBOC was pushing on an open door and is now facing an even more difficult challenge: strong depreciation expectations.…

When Yu Yongding speaks the world listens. He says to float the RMB.

Project Syndicate
A Floor for the Renminbi
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006. He has also served as a member of the Advisory Committee of National Planning of the Commission of National Development and Reform of the PRC.

See also

Since the beginning of the Global Crisis, illicit capital flows out of China have been in decline. This column argues that a key factor behind this is the relative money supply between China and the US. China’s rapidly increasing money supply, combined with the Fed’s expansionary monetary policy, prompted investors to reallocate their portfolios between the two countries. Another contributing factor is China’s gradual process of capital account liberalisation. The Fed’s interest rate hike in December may see a resurgence in China’s capital flight.

Explains the technical meaning of "capital flight" in terms of balance of payments.

Vox.eu
China’s capital flight and US monetary policy
Yin-Wong Cheung , Sven Steinkamp, Frank Westermann

Reuters — China's central bank plans to launch its own digital currencies

China's central bank wants to launch its own digital currencies to cut the costs of circulating traditional paper money and boost policymakers' control of money supply, the People's Bank of China (PBOC) said on Wednesday.

A PBOC research team set up in 2014 to look into digital currencies should make preparations for launches, according to a central bank statement posted on www.pbc.gov.cn.

"The team ... should set up a clearer strategic target for launching digital currencies, overcome the key technological barriers ... and aim for an early launch of the central bank's digital currencies," the PBOC said.

Virtual currencies can also help boost transparency of economic activities and curb money laundering and tax evasions, it added.…

China leads the way.

Reuters
China's central bank plans to launch its own digital currencies

Xinhua — China's forex moves to increase volatility, trading volume: analysis

The latest changes to China's forex market management will increase yuan volatility and boost trading volumes, according to a leading Chinese investment firm.

From Jan. 4, closing time for China's interbank foreign exchange market will be extended from 4:30 p.m. to 11:30 p.m. Beijing time, the People's Bank of China announced last week, adding foreign institutions' access to the market will also be expanded.

The yuan exchange rate may become slightly more volatile, China International Capital Corp. (CICC) said in an analysis note.

By overlapping the trading hours with those of London, the spread between onshore and offshore yuan exchange rates will be narrowed, bringing down the technical difficulty for RMB users to hedge forex risk, it said.

After the changes, China's forex market is set to grow, especially in terms of trading volume, which represents a major opportunity for financial institutions with forex expertise and cross-border capacity, the CICC predicted.

China.org.cn
China's forex moves to increase volatility, trading volume: analysis

Xinhua

Lingling Wei — Loosening the Peg

China moving closer to floating the RMB.

Across the Curve
Loosening the Peg
Lingling Wei

Patrick Bond — China Sucked Deeper Into World Financial Vortex, as BRICS Sink Fast

On Monday November 30, the Chinese currency – the yuan – will join the dollar, euro, pound and yen as the world’s official reserve currencies, as recommended by the International Monetary Fund (IMF). Are we reaching the fabled new era of multipolarity, and will it bring stability to a chaotic world economy – “a win-win result for China and the world,” as the People’s Bank of China claims? Or instead, will this heraldthe amplification of extreme uneven development, worsening financial crises, and the abuse of Chinese economic surpluses, yet again, for the purpose of bailing out the corrupt, fragile world financial institutions and their elites?

Out of paradigm but interesting as a view from the left that is not too different from that on the right. Nothing that being in paradigm would not fix.

Global Research
China Sucked Deeper Into World Financial Vortex, as BRICS Sink Fast

Patrick Bond | Professor of Political Economy at the Wits School of Governance and director of the University of KwaZulu-Natal Centre for Civil Society. His PhD was at Johns Hopkins (1993) under the supervision of David Harvey.