This page contains a Flash digital edition of a book.
FX MONETARY POLICY And now? The ‘new rule’ under Xi Jinping is


making a much more concrete attempt to rebalance the economy and create a more sustainable growth


speculation, pollution, corruption, and cronyism) has been undeniable. Trying to interpret the intentions of Chinese rulers is always a difficult job, but, in the light of such a premise, I think that their willingness to sanction excessive speculation, betting on an indisputable and perpetual strengthening of the Yuan, is pretty clear. Te choice of the timing, starting to generate downside volatility for CNY in February, close to the annual congress of the party, which took place in March 5th-12th, was not a coincidence. It is quite obvious now that this was done with the aim of scaring the market before the widening of the fluctuation bands, in order to avoid more pro-Yuan positioning and more reserve accumulation in a one- way market.


20 FX TRADER MAGAZINE April - June 2014


I guess the easiest part of the forecasting is behind us - I actually have been thinking for a while that a shake up from policy- makers was coming to hunt Yuan bulls. Now, it is difficult to say how severe the PBoC intends to be against the speculators. Te risk that the move could become self- sustaining for some time is not so remote, especially in a market so unbalanced in terms of positioning with a bullish Yuan/ bearish volatility view and with Chinese and Taiwanese corporates full of quite exotic structures. However, if the move were to become disruptive, we have to remember that the central bank has $ 3.6 trillion in reserves, which would be handy to curb the unwanted volatility. And it would not hesitate to use them to prevent any damage to the credibility of a currency that they are determined to internationalize and elevate to a viable alternative to the dollar as a global reserve currency. In fact,


Chart 2 - USD/CNH chart – courtesy of Goldman Sachs


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92