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Yuan Soars Most In A Decade As China Moves To Relax Capital Controls
Just two days ago, we took another look at the various means by which Chinese citizens circumvent Beijing’s capital controls. As a reminder, Chinese are only allowed to move up to $50,000 from the country in any given year, presenting a problem for anyone trying to dodge an export-boosting, double-digit deval or for anyone just trying to smuggle a few million out to buy an overpriced penthouse in Manhattan.
Previously, you could use your UnionPay card to “buy” a Rolex in a back alley in Macau, but Chinese authorities finally tired of that charade and cracked down on the UnionPay end-around last year. Thankfully, there’s “Mr. Chen” and his “yellow loafers”, tea, and Snickers bars. In short, as long as you know the right shady go-between, you too can pay Chen 3% to move your money to Hong Kong, where it will be out of Beijing’s reach and free to go where it pleases.
As we’ve noted on any number occasions, capital controls are to some extent counterintuitive. That is, the stricter the capital controls, the more people want to move their money out of the country. Here’s how we put it last month: “What better way to spark a capital exodus than with very vocal, and very effective capital controls. Just look at Greece.”
Indeed, China will likely need to completely liberalize the capital account in the coming years in order to pacify the IMF which is poised to throw Beijing a bone and grant its RMB SDR bid. Inclusion could lead to some $500 billion in reserve demand.
That helps to explain why overnight, the yuan soared the most in a decade after China moved to loosen capital controls with a trial program in the Shanghai free trade zone that would allow domestic individuals to directly buy overseas assets. The move marks another step towards capital account convertibility, thus bolstering Beijing’s bid for yuan internationalization. The result:
Put simply: when you stop telling people they can't move their money around, there's a good chance they'll stop moving their money around and that means reduced capital flight and in turn, a stronger yuan. Here's Bloomberg:
China’s central bank said Friday that it will consider a trial program in the Shanghai free trade zone allowing domestic individuals to directly buy overseas assets. The nation may dismantle capital controls by 2020, people familiar with the matter said last week, as President Xi Jinping’s government seeks to open up mainland markets to international investors and elevate the yuan’s status on the global stage.
“These policy initiatives are another important step toward complete capital account liberalization,” Zhou Hao, a senior economist at Commerzbank AG in Singapore, wrote in a note. “Clearly, it shows that China could accelerate financial market reform.”
The PBOC first mentioned the so-called Qualified Domestic Individual Investor program for direct overseas investments in a January 2013 statement. An existing program allows individuals to buy securities abroad through asset managers and funds.
Friday’s statement on the Shanghai FTZ, which was issued jointly with several government departments, suggests regulators aren’t far from implementation, said Becky Liu, senior Asia rates strategist at Standard Chartered in Hong Kong.
“This maps out the overall framework of not only FTZ developments, but also the overall direction of China’s capital-account opening in the coming quarters,” Liu said.
Meanwhile, the PBoC looks to have intervened offshore in an effort to close the spread between the onshore and offshore yuan. The gap has widened of late after largely disappearing in September, which telegraphs the market's expectations for further yuan weakness.
The Chinese currency also got a boost from suspected intervention in the offshore market as authorities seek to align the exchange rate with prices in Shanghai, a move seen as increasing the odds of an endorsement from the International Monetary Fund. The yuan gained 0.62 percent to 6.3175 a dollar in onshore trading and added 0.39 percent in Hong Kong.
The question, it would seem, is whether loosening capital controls and thereby increasing the chances that the yuan will become further embedded in global trade and investment will be enough to offset to impulse to move money out of the country. As Citi's head of emerging market economics in London David Lubin put it earlier this week, "SDR inclusion makes the RMB, by definition, a 'reserve asset', and this should catalyse capital inflows to China, but by how much, it's hard to say. And since China should expect to see gross capital outflows for the foreseeable future, it's not even clear that SDR inclusion will lead to a net capital inflow to China."
No, it's not, because between an imploding economy, expectations that Beijing is ultimately targeting a 20% devaluation in order to boost said imploding economy, and speculation that the banking system is sitting on trillions in NPLs (as we've documented extensively, the headline figures for sour loans are likely understated to the point of absurdity), more and more locals are likely to visit "Mr. Chen" in the months and years ahead. Or they'll just opt for the easiest way to move money out of the country of all...
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I'm here mistress Blythe......what is your bidding?
Heh heh.....I can't say that without laughing.....and I'm REALLY trying.
the usual: consume, indebt yourself, believe in modern banking, be it CDSs or now blockchain. whatever, as long as you get rid of barbarism
As in The EU playing Vassal to US policy then getting its economy screwed because of Russian sanctions then receiving millions of refugees? The winter is coming to Europe soon, so how will you then account for millions dying from the cold in the benevolant EU?
You are being used.
like a rubber up the ars..
no can bend over for da club.
see da bitch, bitcheez...
(deleted)
you write about "the EU" as if it would in any way be relevant about all those things. Brussels is blathering. hot air. they don't have any role in the issues you are talking about
(deleted)
suggesting that Europe is doing all what Washington wants in regard of Russia is imho very silly, and Russia isn't the victim in this small trade war, Russia is, up to a point, a willing participant for their own purposes. includng a bit more autarchy, one of their goals in all this. which is an old recipy, btw, to have a sound domestic agrarian sector
does she even have tits?
I would think so.
Screw it.....I'm going to say yes.
Deriva-tits ;-)
Bloomberg seems to gravitate towards trans-genders.
"does she even have tits?"
No but she has MONEY. A LOT of money, especially after Jamie had to pay her off to prevent her from fingering HIM? So I think her lack of tits, or indeed any sense of guilt or shame for what she has done, means very litte to her?
Yeah....but she got stiffed on the cufflinks.
Are we sure Blythe isn't a bloke, a bit butch looking in a tranny sort of way! Adam's apple?
off topic, but noteable, screaming buy me, natty at 2.21!
Move to relax capital controls? What are you smoking? The old crooks who run Beijing are doing everythign they can to contain and control capital movement.
Blythe needs a Blockchain around her neck.
ah-look ah-like ah-man.
tranny porn on ZH!
She could be David Carradine's brother, ah sister, ah I give up.
Blockchain be damned, even with localbitcoins.com you still need exchanges. How else do you convert in & out? Regulate the exchanges, and all funds are monitored. Besides, having mucked around a bit, I can say that copying and pasting bitcoin addresses is no fun, rather, it is scary. Same with the proposed Zero Hedge Coin 0.
I think dropping capital controls makes sense. Why force people to learn how to use things like bitcoin?
http://zhc0.com
Blythe's application for admission to the Bene Gesserit sisterhood was denied due to her having a cryptovagina.
OMG Blythe knows nothing about mesh, crypto, distributive computing, just a shill for Fascist cloud monopolies
economics to have her even associated MAKES ME PUKE... "STUPID IS AS STUPID DOES" Gump Hey Soda jerk your rag is yellow journalism.