PBoC Crushes Short-Term Speculators, Not the Bearish Case

ZH: Ray Dalio Approves Of China Crushing The Yuan Bears

I disagree with B. Fundamentally, the yuan is weakening and becoming less desirable as a transaction currency. It appears to be more desirable for those with high time preference because China is protecting its value today, but the stakes rise over time. China tried stabilizing the yuan for more than year until it threw in the towel in August 2015. By implicitly backing the currency, the Chinese central bank's status is tied into the currency. When yen, euros or dollars tumble, the central bank isn't seen as a failure by the general public. When the yuan eventually tumbles, the central bank and government will be seen losing the battle with market forces, and then people will question implicit debt guarantees and backing of home prices. Ultimately, China will have to sacrifice the currency to maintain those guarantees if there is a crisis.

Finally, it will all come down to the U.S. dollar. If the bull market is intact and the final high still one to two years away, then China has moved the yuan 50 paces east inside a train headed west at 100 kph.

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