China’s yuan barely budges as central bank holds steady

Tommy Xie, an economist with Singapore-based OCBC Bank, said that the direction of the RMB exchange rate formation mechanism reform is clear and that the central bank of China “has been more predictable rather than unpredictable”.

This policy dilemma spilled out into the open over the weekend with reports in the Chinese media of a leaked PBOC memo revealing the central bank’s concerns. By day’s end, China’s Shanghai Composite had plummeted 6.4% and given back Monday’s gains, despite the People’s Bank of China (PBoC) injecting 360 million yuan into money markets.

He also said the PBOC won’t use the markets preferred measure of stimulus, a cut in the required reserve ratio, which gives banks more room to lend and expand credit in the economy.

Mr. Bloomberg said trading and clearing yuan in the USA “will lower transaction costs, increase efficiency, and help build stronger trade and business partnerships-all of which creates jobs and spurs economic growth”.

China is pumping huge sums of money into its financial system to stave off a cash crunch. But start with the fact that China already has capital controls. While there are many restrictions, like the maximum $50,000 an individual can transfer out of the country every year, those limitations are violated on a daily basis and to a larger degree by multinational firms and wealthy individuals with political connections.

Over the years, companies and individuals have devised increasingly innovative ways to circumvent these controls, largely to sneak investment into China.

China could see capital outflows of $500 billion this year, posing a challenge to policy makers trying to defend the yuan in the midst of an economic slowdown and a plunge in equities, according to JPMorgan & Chase Co.’s chief Asia strategist.

The People’s Bank of China will move to encourage foreigners to keep trade-related earnings in China. To support the currency, policymakers have been burning through the country’s foreign reserves at a rate of about $100 billion per month. She said: “I think what is needed for markets is clarity and certainty”, over Beijing’s declared new strategy to maintain the yuan’s value against a basket of currencies of its trading partners. Soros stated that falling commodity prices and currency devaluations were the other two.

That’s the most it’s offered on one day in almost three years, according to Bloomberg, and follows hundreds of billions of yuan it pumped in last week. It still has $3.3 trillion, the world’s largest pile and nearly triple the next biggest stash – Japan’s $1.2 trillion.

First of all, China’s capital account in neither completely open nor completely closed.