The Yuan

Posted: January 4, 2017 in Uncategorized

China is subtly clamping down on Chinese bringing money abroad and devaluing the Yuan to avoid a panic hit to avoid a repeat of a January 2016 scare.

Wile the limit is not changed, all transactions above Yuan 50,000 must be reported to the People Bank of China and all transactions above Yuan 200,000 (circa USD28,400) must be subjected to a report process in which the citizen has to declare jpw the money will be used and pledge that the money will not be used to buy properties, securities and investment related purposes.

Bitcoin just rallied on this. There is not yet any restriction in bitcoin – probably as the market is too small to have a great effect. but it will come.

The other interesting news is that while the Yuan has always been pegged to a basket of currencies, now it just changed the basket decreasing a lot the USD peg.

It increased the basket from 12 currencies to 24 currencies, decreasing substantially the USD percentage in favor of Emerging Market currencies.

As emerging market are more volatile this means that the Yuan/USD will be more volatile and also some of the demand for USD will wane.

China did this as the Yuan lost 7% to the USD in 2016 and losing the Yuan/USD 7 level could spark panick (while the previous basket real value was, in my estimate, 7.5 – with the EM basket now is 6.96).

As we are growing accostumed since the Great Financial Crisis – the governments are not “playing by the rules”, but “playing with the rules”.

 

 

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