Author: cestmoi

The argument for a stronger RMB. [Copy link] 中文

Rank: 8Rank: 8

Post time 2010-3-26 23:12:29 |Display all floors

Post #16 : logic of causality

Originally posted by greendragon at 2010-3-26 12:57
....is China flooding the world with RMB, buying up US$ in the capital market, flooding the market with RMB?
I thought the big FOREX reserves in China comes from export proceeds, and net direct  ...




Thanks for the request for an explanation.

You are coming at it from another angle because you are concerned by the impact on Chinese exports. But if you follow through with you own line of reasoning, you will come to the same conclusion.

Exports of manufactured goods underpin China's current account, the income is or has been used to purchase US Treasury IOUs such as bonds and t-notes. China purchased bonds and t-notes with USD even though many of them (not all)  have near-zero coupon rates. This pumps liquidity back into the US market at a lower interest rate than would otherwise be the case. The difference in interest rates between two currencies is a key determinant (but not only) in the calculation of their exchange rate.

Concurrently, China needs to "stabilize" the exchange rate within a band width, this can be done by using RMB to buy US Treasury IOUs.  It is this buying program which needs to be curtailed, in other words, not buy US Treasury IOUs with RMB.

You point is valid, that much of the initial proceeds came from exports and net FDIs. The next question you need to ask is what did we do with the proceeds and why?

I am open to informed viewpoints and discussions.
Let the dice fly high

Use magic tools Report

Rank: 8Rank: 8

Post time 2010-3-27 00:08:11 |Display all floors

Post #19 - questions

Originally posted by interesting at 2010-3-26 17:53
If the RMB moves, the PBoC will realize a loss instantly because the value of its dollar assets will fall in RMB terms but its liabilities will have the same nominal value. The PBoC finances dollar purchases by issuing RMB-denominated securities in China. If the PBoC cannot take the opposite position of the RMB, it simply can't meet its obligations and becomes insolvent. ...


I didn't know PBoC was buying dollar with RMB denominated securities, I have been too long out of the industry.

Are we talking about "repos"? If so, there might be a way around it.

Do we have the total market value of the outstanding securities?

Also, PBoC can look into SWAPs of obligations to lower the interest bill.
Let the dice fly high

Use magic tools Report

Rank: 6Rank: 6

Post time 2010-3-27 00:12:33 |Display all floors

Good job too!

Originally posted by cestmoi at 2010-3-26 07:20

The system in China is different, PBoC is not the same as US Treasury. PBoC alone does .....
.

I'm very proud China is an independent country able to stand up to Western bullying, unlike Japan.

The Japs were forced by the Western Club to set their Yen sky high in the late 80s, early 90s. Their economy is still in the doldrum.
Is this what you want for China Cesspool, a lackey of the USA?
There'll be no taker on your trickery proposition gweilo!

Use magic tools Report

Rank: 6Rank: 6

Post time 2010-3-27 00:16:48 |Display all floors
China is an exporting country.
The US dollar is the World's Reserve Currency.
I don't see how pricing Chinese goods out of the global market can be beneficial for China or Chinese jobs.
It might satisfy the wishes of them uncompetitive Yanks and devious corrupt American politicians, but good for China?
Don't make me laugh!

Use magic tools Report

Rank: 6Rank: 6

Post time 2010-3-27 00:35:42 |Display all floors

You are discounting.....

Originally posted by cestmoi at 2010-3-26 06:29


What has this to do with Washington?

Why did you drag Washington into the discussion between the People's Bank of China and the Commerce Ministry?

Both the People's Bank and the Commerce ...


...the possible influence policies of Washington might have on the thinking of PBOC and the Commerce Ministry. The policies of the PBOC and the Commerce Ministry will always put China first but whatever they think will have taken into consideration the impact on the world and how that might adversely affect China. The world would include washington, of course. And Washington's attitude toward China might be a determining factor in their thinking....

(Interesting that in todays's CD Fred (Zuliu) Hu, formerly of Goldman Sachs Asia, has been tapped for a senior post at PBOC. Yes, Goldman Sachs; the same Goldman Sachs of the controversial bailout and even more controversial bonuses. And, of course, let's not forget their help in plunging Greece into bankruptcy. One has to wonder what Mr Hu will bring with him to the PBOC....and to China...)

Use magic tools Report

Rank: 6Rank: 6

Post time 2010-3-27 00:50:05 |Display all floors
Originally posted by ganzhuolin at 2010-3-27 00:35


...the possible influence policies of Washington might have on the thinking of PBOC and the Commerce Ministry. The policies of the PBOC and the Commerce Ministry will always put China first but ...
.

A bag of tricks and monetary wizadary?
Literally!

I afraid money can be the root of all evil.
Yep, Futures trading is now implemented, and soon there will be Western style Derivative shytes being traded in the Shangai Exchange.

Will we see a coastal citiy of China be exchanged/sold for US T-bonds in some future expanse?
A frightening thought!

Use magic tools Report

Rank: 8Rank: 8

Post time 2010-3-27 02:11:45 |Display all floors

does it mean...

china imports more at lower price & exportin more of what she makes at a competitive price  

Use magic tools Report

You can't reply post until you log in Log in | register

BACK TO THE TOP
Contact us:Tel: (86)010-84883548, Email: blog@chinadaily.com.cn
Blog announcement:| We reserve the right, and you authorize us, to use content, including words, photos and videos, which you provide to our blog
platform, for non-profit purposes on China Daily media, comprising newspaper, website, iPad and other social media accounts.