Tag: Yuan

Has China Lost Control?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


This morning's newswires are filled with stories of yet another dramatic intervention by China in the Yuan exchange rate. This time, though, it's in favor of the Yuan. That news, more than any, has investors alarmed as it seems to suggest that China has lost control. To that, I say how can you lose something you never had?

China Never Had Full Control

China and its financial authorities, namely the Peoples Bank of China, are viewed as the effective forces controlling the Chinese money market. That means not just the currency but also the financial markets and inflation. Hence, the state of alarm currently dominating markets makes sense. But the fact is that China never really had the control that investors believed it had. Because simultaneously controlling monetary policy and the currency is like "trying to hold the stick at both ends;" it's just not possible. Continue reading "Has China Lost Control?" →

China Devalues The Yuan: Now What?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


It was less than a week ago that we pinned down the growing possibility that China would move to devalue the Yuan. Then – Bang! Since this morning, it's a done deal. Or is it? While China's move to devalue the Yuan (by roughly 1.9%) in a single day is the most aggressive Yuan devaluation since the "roaring" nineties, chances are this is only the beginning.

China Must Regain its Competitiveness

The core of the matter here is that China is trying to maintain the facade that this was a one-shot deal. However, it really has more to do with the government's attempt to free the Yuan rate. Beijing, it seems, may have finally bowed to the realities of market economics. Even as it enacts reforms to liberalize its financial markets and change its economic model, China must regain its competitiveness when it comes to exports. Continue reading "China Devalues The Yuan: Now What?" →

China's Real Problem: The Yuan

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


In the past few weeks, and especially this last one, equity investors watched in horror as China's stock market began to disintegrate. More than $3 trillion in value disappeared in what seems like the blink of an eye. Over the same period, the FX market has been preoccupied with the unfolding events in Greece. Many investors believe that, while Greece is very relevant to the FX market, China's problem pertain only to a bubbly stock market. If that's what you believe, too, you thought wrong! China's stock crash is a mere side effect of the country's real problem – the Chinese Yuan.

China's Ambition for the Yuan

The Yuan has always been a critical tool for Chinese policy makers. During the 1990s, China essentially sacrificed the Yuan in favor of growth as it aspired to become the world's factory. That thanks in large part was to a cheap labor force. Cheap labor is essentially only possible with an undervalued currency. The Chinese government succeeded in its endeavor. China rose to prominence, moving swiftly from a somewhat marginal economy to the world's second largest economy. There is no other way to describe it except as a phenomenal economic achievement and one skilfully executed.

China Annual GDP Growth

Now, Chinese leaders have reached their next resolution and are set to take the first step. Once again, the government’s resolve relates to the Yuan. In order to avert a Japanese style of rise and decline, China's government wants to do things differently. The government recognizes that it must turn the Yuan into a reserve currency, one that matches the dollar. This will allow China to turn into a more sustainable credit-driven economic model, à la the United States. Continue reading "China's Real Problem: The Yuan" →