China re-pegging to the Dollar & PBOC controlling liquidity and real rates?
Pete Sweeney, Asia Editor, Reuters Breakingviews
'China has changed the way it uses the basket of currencies, and 'a lot of people think China is now re-pegging to the Dollar.’
'A lot of people think China is now re-pegging to the Dollar' Pete Sweeney, Asia Editor of Reuters Breakingviews, told me in a recent interview.
But, what about China's basket of currencies that replaced the Dollar peg in 2016 to manage Renminbi value? Pete says...
The Dollar is the world's global currency, so pricing against a basket is a diplomatic cover to a certain extent to say, 'Look, our currency is falling against the Dollar, but we're tracking the Yen, the Ringgit, whatever,' so it makes the Chinese emphasize that they're part of a crowd, which is fair.
But, in operational reality, everybody cares about what the Yuan - the Renminbi - is doing with the Dollar, and that's the majority of transactions, so that's the exchange rate that counts. It's what Donald Trump cares about.
To learn how the China has changed the way it sets the daily RMB rates watch Pete's 5-minute interview.
Market chatter in China right now is about the People’s Bank of China’s decision not to follow the Fed in raising its interest rate (specifically the guidance rate for the 7-day repo).
Why the chatter? 'Some had expected a rate hike, especially given China’s need to deleverage or at least moderate credit growth,' Pete Sweeney, Asia Editor of Reuters Breakingviews, told me in a recent interview.
Pete says one reason the People's Bank of China (PBOC) didn't raise rates is that, unlike in the U.S. and other developed economies, China tends to focus on liquidity more than on formally published rates.
And, here's something important I learned from Pete. Although nobody has any evidence, many speculate that the PBOC may be controlling liquidityand real rates through undisclosed cooperation with China’s giant state-owned banks. To find out how this might work.