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This post was edited by abramicus at 2015-8-13 14:59|
ANOTHER FORM OF ABUSE OF CHINA'S MONETARY RESOURCES, SIMILAR TO THE LOGISTICS ABUSE CASES, SELLING OFF BILLIONS OF DOLLARS TO BUY YUANS WHEN THE YUAN NEEDS TO DEVALUE, WASTING HARD EARNED DOLLAR RESERVES WITH NO BENEFIT TO THE COUNTRY.
The PBOC went back to its old habit of buying Yuans with hard earned dollars, just to show the world its current management is still in power, and did they prove it on the second day of allowing the market to devalue the Yuan when in the last hour of trading, they revalued the Yuan from 6.44 to 6.38, with continuous dollar selling by some banks linked to the PBOC. If the aim is to bring the Yuan exchange rate higher, contrary to the goal set by the State Council, then it is an act of disobedience, if not defiance. If the aim is to prevent the Yuan from depreciating by more than the pre-set 2% band, it is unnecessary because it had not yet touched the 2% devaluation limit. If the aim is to punish the market, by making the sellers of the Yuan feel a temporary loss when the Yuan appreciates at the last minute, even causing a short squeeze amongst those who shorted the Yuan, it is an irresponsible waste of hard earned dollars, since the final equilibrium yuan exchange rate is bound to go back down again, which it did when the market opened on the 3rd day (August 12, 2015), wiping out all the "Yuan appreciation gains" that the PBOC wasted tens of billions of dollars to achieve for the glory of the closing bell.
Missing here is the first cardinal rule of preventing corruption, which is that no government entity should be allowed to waste public money or lose it outright, in the name of policy or privileged power, without accounting for it. Without accountability, who can tell if any monetary intervention is for the benefit of a foreign government, a foreign financial institution, or some big wig who needs dollars on the cheap, to be taken at the close of the day from state-sponsored banks commanded to sell dollars at any price?
What the surges of Yuan appreciation proves is that the foreign powers still have leverage over the decision-making bodies of China's Yuan exchange rate policy, and that their point men, still have control over sizable chunks of China's dollar reserves, to spend at will without any gain to expect.
There are powerful forces trying to put China's neck again on the chopping block, to allow a Fed rate hike to decapitate China's fragillized and malnourished manufacturing sector which will go bankrupt by the hundreds of thousands and by the millions, if the devaluation of the Yuan is not enough to offset the appreciation of the dollar caused by the Fed rate hike. These Economic Hit Men are doing their darndest worst to bring China back to the brink of economic collapse. And, they are succeeding on the 2nd day of the liberation of the Yuan from their unwanted overvaluation, by showing they can dump a hundred billion dollars in a day to do the Yuan in, even now.
The proper, responsible use of these dollars is to sell them to Chinese firms that have borrowed dollar-denominated loans, so that they can pay off these loans, in return for which, these firms would have to borrow Yuans to purchase these dollars from the PBOC with, effectively swapping dollar-denomnated loans for yuan-denomnated loans. That is the best way to use these dollar reserves. Not in a futile attempt to punish those who are buying dollars and selling yuans in order to repay their dollar-denominated loans, but in a productive way to actually help them do this at the least possible cost to their bottom line.