Yuan Pressured By Dollar, Not Expectations, Yet

SCMP: How wealthy Chinese move hundreds of billions abroad to buy assets

“If the PBOC can introduce more two-way flexibility of the exchange rate and effectively manage market expectations, residents will probably reduce their bets on the yuan’s decline,” Hu added.

He expects the yuan to reach between 6.6 to 6.8 against the US dollar by year-end, albeit “with more fluctuations”.

The yuan is falling because people expect it to fall. They move assets out of the yuan, causing it to fall, which raises expectations of a further drop, etc. etc.

This is not an incorrect formulation, since there are self-reinforcing cycles (reflexivity), but the pressure on the yuan will not come from outflows, at least not until the final stage. For now, pressure will come from the global financial system and global economy, through the U.S. dollar. If the U.S. Dollar Index climbs back above 100 and heads towards 110, all the efforts of the PBoC, capital controls and the rest, will be wiped out.