PBoC Will Not Allow Currency 'Accident', Red Line at USDCNY 6.90

The PBoC drawing a line here gives me a really bad feeling. I think the real line is at USDCNY 7.00 because that's where speculation really kicks in. It holds or nothing does.

No nation is large enough to bail China out. There's a trade war on. Will the U.S. try to save China, and if so, how steep an asking price? Once the yuan collapses by a large enough amount, it will have cleaned its balance sheet and eliminated the risk of a credit crisis. See how the Asian Crisis nations performed after the currency devaluations. If currency devaluation comes first, there's no economic pressure on China, its economy bottoms out and starts booming. The U.S. economy will be crippled by too high exchange value of USD, as could be Europe and Japan if their currencies share the blow with the USA. If those currencies weaken as well, this is the beginning of the end of the 10-year depression. The U.S. dollar will be the last to tumble.

CNStock: 央行副行长刘国强：汇率市场状况平稳 没有也不允许“出事”
Sogou: Liu Guoqiang, Deputy Governor of the Central Bank: The exchange rate market is stable. No "accident" is allowed

According to the Financial Times, Liu Guoqiang, deputy governor of the People's Bank of China and deputy director of the Office of the Financial Stability and Development Committee of the State Council, said on May 23 that the RMB exchange rate had recently depreciated to a certain extent. It should be said that the reaction of exchange rate to market expectation is the inherent logic of market economy and the embodiment of exchange rate playing the role of "automatic stabilizer" of macro economy and balance of payments. At present, although the exchange rate has experienced some occasional overshoots, the market situation is stable and "accidents" are not allowed.

Liu Guoqiang pointed out that the external situation in the next stage is complicated, with both rising and falling factors, but with conditions, ability and confidence to keep the RMB exchange rate basically stable at a reasonable and balanced level.

In the medium and long term, the trend of exchange rate mainly depends on economic fundamentals. China's economy will be in an important period of strategic opportunities for a long time. Its development has sufficient resilience and great potential. The long-term economic trend will not change. At present, the main macroeconomic indicators remain within a reasonable range. The macro leverage ratio is basically stable, financial risks are generally controllable, the balance of international payments is generally balanced, and foreign exchange reserves are sufficient. With the continuous implementation of a series of policies and measures in recent years, such as streamlining administration and delegating power, reducing taxes and fees, the economic vitality has also been continuously strengthened. Good economic fundamentals will continue to provide fundamental support for the RMB exchange rate.

"Judging from international experience, it is very difficult for big countries to have currency crises. China is the world's second-largest economy, and its macro-control and market mechanism are effective, and there is no basis for a currency crisis. " Liu Guoqiang said that the temporary uncertainty in the current external environment is only a snag in China's development process and will not affect China's long-term economic fundamentals.

"We are no stranger to exchange rate fluctuations. In recent years, we have accumulated rich experience in dealing with them and have sufficient reserves of policy tools. We will further strengthen macro-prudential management and stabilize market expectations." Liu Guoqiang pointed out.

Liu Guoqiang said that in the next step, China will persist in deepening reforms in an all-round way, strive to form a new situation of opening up to the outside world, further enhance the internal growth momentum and vitality of the economy, and continue to consolidate the fundamentals of China's long-term steady economic development. We will deepen structural reforms on the financial supply side, balance the relationship between stable growth and risk prevention, expand financial openness, adjust and optimize the financial system structure, and enhance the real economic capacity of financial services to provide fundamental support for the basic stability of the RMB exchange rate at a reasonable and balanced level.

Reuters: China has ample policy tools to cope with yuan swings: central bank

This is the worst headline from Bloomberg: China Draws Line in Sand for Yuan as Fix Stays Stronger Than 6.9

China’s line in the sand for the battered yuan seems to have appeared.

The People’s Bank of China has been keeping its daily fixing for the onshore yuan stronger than 6.9 a dollar, even though the spot rate has been closing weaker than that level. The official reference rate has been stronger than the projections of analysts and traders every day this week.

The fixings, which provide a hint of Beijing’s stance on the yuan, come amid other signs the PBOC has seen enough depreciation. Central bank Deputy Governor Liu Guoqiang said in an interview with the state-backed Financial News published on Thursday that China is able to keep the exchange rate basically stable at a reasonable and equilibrium level. The government has ample policy tools to cope with fluctuations, he added.

That follows similar statements recently by state media outlets and officials. The central bank also said this week it would sell bills in Hong Kong soon, a move that would drain offshore liquidity and support the exchange rate.

"The PBOC hopes to stabilize the fixing at 6.9, which helps anchor market sentiment and ensures the spot rate doesn’t weaken too much," said Gao Qi, a currency strategist at Scotiabank in Singapore. "China won’t likely set the rate weaker than that level tomorrow either because then Asian markets would feel nervous and sell the yuan and other currencies."