China is in trouble! For OANDA: NZDUSD By LuisLizama
EURODOLLARS disappearing from its domestic banking system, CNY devalue, PBOC procurement and the RMB constraint.
So what caused this in 2015? The answer is: The exit of USD at the depositories by the big commercial actors (Banks, Funds, ETC.). Now, if you remember one of my previous posts from a few months ago, China is trying to fight a monetary trilemma, which to this day is losing. The trilemma is, let us remember, to have control of one’s capital account, to have a fixed exchange rate, and above all to have monetary autonomy. The problem here is that China, over the past two decades, has used huge amounts of credit and leverage to accelerate its economic progress. Now, if you recognize that China is heavily dependent on the export of goods, it cannot afford to have exits!
If China struggles to secure US dollars, it will face a domestic credit crunch – domestic credit markets, especially in the real estate sector, will implode.
If foreign markets face deflationary conditions, China will need to devalue its currency to offset the tightening credit conditions.
If China is forced to devalue its currency too quickly, outflows of USD by depository institutions will likely occur, causing domestic credit to tighten.
This is the problem here:
China is struggling with its dependence on the strong dollar, but it can only fight slowly because it risks destroying its credit markets. The other problem is that the FED is engaged in(WHO IS DEFLATIONARY) and is engaged in yield control by tightening yield markets to drive down yields in order to stimulate loan growth. YES! is designed to reduce returns by tightening financial conditions. (The FED does not print the dollars!)
The solution: PBOC fights toughening conditions by reducing its RRR rate and sale UST to devalue its currency. SHORT ASEAN Coins !!
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