CHINA - US...A War Of Currencies ?

 

 

 

 

We were used when we referred to China , as a country

feeding the world in the last two decades .

We were also used to 8-10% growth annually .

Well , serious problems started to emmerge hitting the world's

first economy ( it recently surpassed according to some

studies, the U.S ) , as we speak....

 

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Let's have a closer look at what is happening right now in 

this immense country .

 

   

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Every weekday morning this year , China's currency has followed the same ominous path .

The central bank in Beijing fixes the initial value for the renminbi,

the center point for the currency's daily trading range .

It is roughly the same value , 6,12 to 6,13 to the dollar .

Then the markets open in Shanghai , and the renminbi quickly sinks close to the bottom of the currency's trading band , roughly 2% lower . Only frequent intervention by the central bank - buying renminbi and selling dollars - prevents the Chinese  currency from falling even further .

The weakness in the renminbi is a growing worry for government policy makers and corporate executives .

The currency's decline reflects the money flowing out of the country . Wealthy Chinese are moving large sums overseas ,

troubled by President Xi Jinping's anticorruption campaign and 

the country's slowing economy .

Foreign investors are also growing more skeptical of China .

   

 

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For many years , China kept the renminbi weaker than economic fundamentals dictated to help its exporters stay competitive in foreign markets .

But a weak renminbi is no longer an unalloyed advantage .

Chinese banks and companies have borrowed from overseas an estimated $1 trillion in mostly short-term , dollar-denominated debt over the past five years .

They were betting that the renminbi would continue its 

decade-long gradual appreciation , which would have made  their debts in dollars less expensive to repay .

But a depreciating renminbi makes that debt more costly .

That poses a dilemma for central bank officials .

Obviously the Chinese cannot afford to let their currency depreciate too quickly . Firms could be pushed into default .

Almost no onr expects a sudden , disorderly fall in the renminbi .

At $3.84 trillion , China's foreign exchange reserves dwarf every other country's , accounting for a sixth of the entire world's supply . China can easily fend off any attempt  to " break the renminbi " in currency markets .

But banks , traders and many companies increasingly expect at lrast gradual depreciation .

In preparation , they are starting to shift money out of China and 

place bets on a weakening  renminbi .

 

 

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