EMERGING MARKETS
Depository Receipts (ostensibly work similarly to ADRs and GDRs, but aimed at Chinese companies with listing in HK, or London or the US).
The IMF published its latest estimate (Q4
trading system that the US was instrumental in creating works in it interest. Chinese officials are nothing if not pragmatic. They will be the concessions that are necessary to preserve and augment
17) of
cu r r e nc y r ese r v es . The yuan appreciated by 2.25% against the dollar in Q4 17. This is more than the other reserve cu r r e ncies moved against the dollar in Q4 17.
Even no
central banks added to its yuan reserves from the $107.9 bln held at the end of Q3, the currency valuation adjustment would lift it to over $110 bln.
The inclusion in the benchmarks may see significant passive inflows into China of between $400-$500 bln
its place in the world economy.
Despite some metrics making it look like China rivals the United States, like GDP at purchasing power parity, most observers recognize that the role of the yuan and Chinese markets are nowhere close to taking on the US. China still needs years go growth and development, and the multilateral
China is not defenseless in a trade war, but many observers trying to game out the extent of its weapons lack imagination. They focus on agriculture or some other products, like big-ticket item airplanes. Some see the exchange rate as a possible tool and others have given some thought to the reduced buying of Treasuries,
or even their sales.
FX However,
many of these actions could hurt China. Instead, it behooves the US to think of other ways China could strike back without doing harm to its own agenda. Imagine China lending out or repo-ing its US Treasury holdings.
Ne ver theless, it seems as if Chinese officials are drawing the same insight as others are after Trump’s first year in office: Resist when possible, make c o nc es sio n s w h e n necessary, avoid ant a g oni z ing ne e d les sly . There seems to be a general acceptance that
Trump represents an anomaly - a vocal minority
of the political
and economic elite - who won control of the levers of state, but their hold on power is tenuous at best and could in any event be circumscribed by the November mid-term elections.
Marc Chandler
Global head of currency strategy at BBH Brown Brothers Harriman
FX TRADER MAGAZINE April - June 2018 41
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