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bushier Post time: 2015-8-24 13:09
Foreigners who have deep pocket can earn riskless free money, if Yuan is allowed to be depreciated.
THE REAL MATHEMATICS OF THE NEW CORRUPTION
To be clear as to who benefits and who loses from a Yuan devaluation, you need to avoid using pronouns such as "you" and "I".
Now, let us say A is a foreigner, and he invests 100 US dollars in China when the exchange rate was 7.00 Yuan/Dollar. He gets from the PBOC 700 Yuans to buy Chinese goods, real estate, etc., with. Or, if he is conservative, he puts the 700 Yuans in a Chinese bank, earning 3% interest per year. Let us say his stake remains 700 Yuans, assuming the interest rate is 0%, for simplicity Now, with the Yuan exchange rate being 6.40 Yuan/Dollar, he sells his Yuans back to the PBOC, and he gets $109.38 dollars back. Without taking any risks, he earns a clean $9.38 from his initial investment of $100 dollars, representing a riskless profit of 9.38%. This is why and how Yuan revaluation (i.e., overvaluation) results in a loss of dollar reserves, and is a give away to foreigners who had invested in China. Now, remember, a huge chunk of so called "Foreign Direct Investments" come from Hong Kong and the British Virgin Islands, which has been speculated to belong in actuality to Chinese businessmen and corrupt officials who had first taken them out of China, repackaged them as foreign corporations, and then re-invested them in China. A Yuan revaluation, from 7.00 Yuan/Dollar to 6.40 Yuan/Dollar would benefit these "foreign investors" with a bonus of 9.38% of their dollar investments in China. Earlier in July, 2015, when the Yuan exchange rate was even higher at 6.20 Yuan/Dollar, these "foreign investors" could have gotten free bonus money equal to 12.9% of their original dollar investments!
Now, you can see why the powers that be are so adamant that the Yuan must remain overvalued, until they have converted all their Yuan assets back into dollars, taken them out of China with all the bonuses that the overvalued Yuan confers on them . . . before the final devaluation of the Yuan which cannot be avoided if the foreign currency reserves of China are depleted at that time, falling below the total value of the foreign-currency-denominated loans taken out by Chinese businesses and government agencies that have ballooned to 3 trillion dollars in the past 3 years.
So, that day of unavoidable devaluation is not far away.
But, until then, China can still preserve whatever remains of its current equity in its foreign currency reserves by devaluing the Yuan now, instead of later, and that is worth at least 1 trillion dollars.
Unfortunately, the powers that be will not allow this to happen. They will make sure China gives up the last penny of its dollar reserves before they will allow the Yuan to depreciate. And by then, they could not care less if it dropped to 9.00 Yuan/Dollar, because by then, all their Yuan assets would have been converted into dollars and transferred abroad into their foreign bank accounts.