If China Wins War With RMB Bears, Who Loses?

Phoenix TV runs a program on yuan devaluation. Headline is: If China Wins, Who Loses? One screenshot:

This is a bit like running a story on Super Bowl wagers. If the Broncos win, who loses? Sure, there are people who will lose, but they do not affect the outcome of the game. Betting against the Chinese yuan is still a minority position and outflows of $1 trillion in 2015 absolutely dwarf the yuan bets. There is almost no direct financial impact from the futures and options markets back to the yuan because of the relative size of the markets, but there is informational value. China is running propaganda against yuan bears because the informational value of their bets is huge. This is not a situation where the hedge funds will strip the Emperor of his clothes, it is that he is naked and they are going around saying, "I bet you a penny the Emperor is naked."

The hedge funds are able to make massively leveraged bets in terms of their market impact because the major cost of the trade falls on the PBoC. A homeless man who collects bottles and cans could "break" the PBoC because the PBoC has to fight trillions in outflows from tens of millions of Chinese people. Going up against the PBoC in a true mano-a-mano battle is nuts because obviously the PBoC can come in and smash anyone who doesn't own a printing press. One isn't really betting against the PBoC directly though. Rather, one is betting the PBoC cannot defeat market forces, nor has the strength to hold them at bay longer than the economic adjustment will last.

It is a very asymmetric bet, which is why the payoffs will be high. The behavior of the PBoC to this point shows they believe devaluation is a possibility, otherwise they would ignore it. The informational power of the market is rising due to financial reforms, so China must step up its propaganda to counter it.

iFeng: 金石财经:对冲基金做空人民币 若中国赢会损失什么?

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