Good Spot for Yuan Reversal

Bloomberg: China Should Let Yuan Gain to Offset Price Surge: PBOC Official

“As an important consumer of commodities globally, China is inevitably impacted by international market prices through imports,” Lyu Jinzhong, director of the research and statistics department at the central bank’s Shanghai branch, wrote in an article published Friday by China Finance, a magazine run by the PBOC.

His comments came as China grapples with the fastest rise in producer prices in more than three years, with the government rolling out more measures this week to check speculation in the commodity markets and quell inflation fears. The surge in factory-gate prices is unlikely to lead to any significant spike in retail inflation, given the divergence in consumer prices that have seen only modest gains, according to Lyu.

Also notable is China bashing Bitcoin mining, one of ways Chinese can avoid capital controls.

Update: Today comes this headline: On Friday A PBOC Official Called For A Stronger Yuan; One Day Later His Article Was Deleted

On Sunday, People’s Bank of China Vice Governor Liu Guoqiang appeared to counter that view, saying the exchange rate will be kept at “basically stable” levels. Local media also chimed in with a front-page commentary, saying the exchange-rate mechanism is expected to stay stable for some time.

A stronger yuan would cut the cost of imports, such as commodities, which have been a major component of increasing prices. But the strength of the yuan means additional gains may fuel speculation that authorities are letting go of the currency -- thereby spurring traders to bet on further appreciation. Such one-way bets have long been resisted by the PBOC, while a too-strong yuan would also hurt the nation’s global competitiveness by making exports more expensive.

If Beijing was serious about letting go of the yuan or making it more international, it would ease capital controls. So far, there’s little sign of that. A botched mid-2015 move to let the market have a greater role in setting the yuan spooked global investors, eventually pushing Beijing to adopt its current framework: welcoming inflows of overseas capital while limiting the outflow of domestic money.

There's nothing current about it. It's same policy in place since the hard peg was eased in 2005. Their attempt to open up in 2015 caused them to crackdown on outflows. They have moved backward in the midst of deflationary pressure from the U.S. dollar, from the global financial system creaking under its natural debt limit. Today, their economy is barely growing above stall speed adjusted for credit growth and risk of upsetting the credit market. A drop in exports caused by an appreciating yuan might be enough to tip the economy back towards a crisis. Forex reserves are already below 10 percent of M2 and any appreciation in the yuan only increases the impact of a given outflow of U.S. dollars.