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The People’s Bank of China recently released full year 2012 data on the nation’s Balance of Payments (BOP) and International Investment Position (IIP), which shows how the nation’s external balance sheet evolved in the course of the last year. China’s balance of payments shows a dramatic change in cross-border capital flows in 2012. The financial [...]
In September, we discussed a dramatic cooling in expectations for appreciation of the RMB. Little or no appreciation in the first nine months of the year led many market actors to change their assumption that RMB appreciation was inevitable. The last three months suggests that this trend is gradually changing as market actors warm up [...]
There has been a dramatic change in expectations around the renminbi’s exchange rate. No appreciation over the past nine months has meant the previously one-sided bet on steady appreciation is over. Accordingly, businesses are no longer as eager as before to hold renminbi. Previously, corporations receiving payments in dollars were quick to exchange their earnings [...]
The incremental approach Chinese policymakers have used for renminbi internationalization occasionally leads to strange outcomes, such as a markedly different price for offshore and onshore renminbi. Since the creation of a cross-border trade settlement scheme in 2009, renminbi deposits have rapidly accumulated in Hong Kong . The buildup of renminbi deposits has occurred primarily through trade settlement (Chinese [...]
The U.S. Treasury releases monthly information via their Treasury International Capital Systems (TIC) reports on holdings of U.S. Treasuries by foreign countries. These releases invariably generate a lot of media attention as analysts fret over whether China has decided to diversify away from U.S. debt. It’s an important question. If China decided to shift away [...]
From the WSJ: “A country that grows more rapidly than another because of faster productivity gains should see its wages and prices also rise faster and hence should become less competitive than the other country. In other words, faster growth in one country should lead to an appreciation of its currency relative to the other. [...]
It is currently costing the Chinese central bank about $240 billion per year to hold down the value of the Chinese currency relative to other currencies. This cost is growing rapidly. The cost would decrease significantly if China allowed its currency to float and began reducing its foreign reserves, although there would likely be a [...]
Over the past several years, the Chinese government has frequently argued that the renminbi is steadily moving towards an equilibrium exchange rate. China’s financial authorities made this claim in their responses to both the 2010 and 2011 IMF Article IV Reports. 2010: “They [the authorities] viewed the level of the renminbi right now as much closer [...]
The current round of renminbi appreciation was announced on June 21, 2010. Since then, over three hundred trading days have passed and the currency has steadily ticked upwards against the dollar. Indeed, the renminbi appears to be moving relatively quickly when compared to the previous round appreciation that began on July 21, 2005. The current round [...]
The renminbi’s managed peg against the dollar is one of the cornerstones of Chinese economic policy. Typically, maintaining such a peg in the face of significant pressure to appreciate would be extremely difficult. The People’s Bank of China (PBoC) is forced to print large quantities of renminbi and buy up dollars in order to combat [...]