Meanwhile In Shanghai Residents Form Lines To Sell Yuan, Buy Dollars

Tyler Durden's picture

On Thursday, as the world was focusing on the collapsing Chinese exchange rate, we noted that in a more troubling development, in December Chinese FX reserves declined by a record $108 billion, bringing the total drop for 2015 to over half a trillion, and the cumulative decline since Chinese reserves starting dropping in mid-2014 to just shy of $1 trillion.


But why if China has been so keen on devaluing its currency - at least since the formal start of the devaluation on August 11 - was it selling so many USD-denominated assets? The answer: because if the PBOC did not step in and halt the decline (by liquidating reserves) the drop would have been even greater, suggesting that the capital outflow from China is orders of magnitude worse than either Beijing, or Chinese analysts would like to admit.

One thing is certain: there is much more depreciation to go. As we reminded readers yesterday, one month ago we predicted at least another 15% in CNY devaluation, something Bloomberg agreed with over the weekend. And as China devalues more, it will face even more outflows: at least $670 billion which will drastically cut the country's pile of FX reserves at the worst possible time - just as China's banks are forced to begin recognizing the huge pile of non-performing loans as a result of a tsunami of pent up corporate defaults mostly in the commodity sector.

All that assume a continuation of the smooth devaluation seen since the August 11 shocker.

As SocGen points in a note today, "press reports at the end of last week suggested that senior policy advisors would like to see a sharp one-off depreciation of the CNY. The theory is that once such a move had been accomplished, the domestic capital outflows, that are putting additional pressure on China's financial system and draining the FX reserve, would stop. The same policy advisors, however, recognise the dangers of such a strategy. First, domestic savers may not believe a “one-and-done” strategy, risking further capital outflows. Second, China's political standing in the G20 group could well suffer as a result, which is important point to the current administration. Finally, the potential disruption to financial stability outside China, and with the risk of an Asian currency war, would ultimately feedback negatively to China.

The first point is one we broadly mocked back in August when one after another PBOC speaker swore that the devaluation is over. We were correct in pointing out that it had only just begun.As such it is logical why the local population no longer believes a single word uttered by officials.

Which brings us to another key point by SocGen:

While China is willing to spend some of its FX reserves to manage the pace of currency depreciation, we believe that the authorities would step in with further capital controls should this be deemed necessary rather than risk an accelerated run down of reserves. Already last week saw some further tightening of the existing rules; Chinese citizens are still allowed to convert $50,000 annually (resetting on January 1), but a maximum daily limit of $5,000 has now been set unless an in-person appointment is made, in which case the cap is $10,000 and with a maximum of three meetings permitted per week. The irony is that expectations of further tightening of capital controls could add to outflow pressure.


Because as Ming Pao, the most influential Chinese newspaper in Hong Kong, reports that Shanghai residents are lining up at local banks to sell Yuan for Dollars over fears of even more Yuan devaluation.

The good news: there may be lines, but they aren't long. Which is good: the last time we say long lines was in December 2014 when the ruble imploded and the local population was rushing to exchange their rapidly devaluing pieces of paper into dollars or hard assets.


More on the current sentiment on the ground in China, google translated from Ming Pao, according to which to avoid long lines forming, China Merchants Bank is urging people to seek personal appointments or be limited in how much they can convert:

China Merchants Bank yesterday to purchase foreign exchange business can be seen in public not long lines, but bank employees significantly increased the number refers to the earlier exchange, cash dollar now the best appointments, but she said that did not change in swap lines. Mainland exchange regulations limit $ 50,000 per day for a year, to be exchanged for cash the same day, the maximum limit of $ 10,000.


Not helping matters was a comment by Chen Xuebin, Professor in the Institute for financial studies at Fudan University, in which he said that based on past experience, the currency devaluation may cause a short-term panic effect. The silver lining: during last year's 6% depreciation, there were no bank runs, so he is not too worried this time either.

This time may be different, as SocGen points out:

To our minds, the most significant change on China since the equity market first crashed last summer is the perception that the Chinese administration holds much less control over the economy and financial system than what was previously perceived. Part of this is the natural consequence of reform, and not least in the financial sector. Less than apt communication and somewhat confusing policy initiatives have unhelpful, to say the least. This does not mean, however, that the administration is without control.

That is certainly the case, and over the next several weeks and months we will find out just how much, or little, control China's administration still has left.

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Wile's picture

They should be buying Au Ag.

Stuck on Zero's picture

The dollars burn hotter than Yuan.  Useful on a cold night.

Nutsack's picture
Nutsack (not verified) Stuck on Zero Jan 10, 2016 4:43 PM

It won't be long until the shoe is on the other  foot.

krispkritter's picture

Frying pan -----> Fire(sale)

Escrava Isaura's picture



Some research would help:

Being the world’s reserve currency merely means that as a trade convenience, banks around the world hold dollars in reserve. It has nothing to do with the federal government’s ability to “fund” its deficit, whatever that means.

US debt cannot be purchased with foreign currency. To buy a T-bill, one must use dollars.

Further, dollars used to purchase T-securities are not “redistributed in the US.” That’s the “federal-taxes-pay-for-federal-spending” myth. Dollars in T-security accounts have but one place to go: To China’s checking accounts.

The only way American consumers can get their hands on those dollars is if China spends them here: i.e. China imports American goods and services. How has that been going?

Deficit is no burden, because Monetarily Sovereign government has the unlimited ability to create money and to determine both the exchange value of the it and national inflation rates. That is what being “sovereign” entails.


And I could go on……………………

monk27's picture

... Deficit is no burden. That's a load of crap so stop it right there ! In all truth, maybe it would be much better (for all of us) if you won't go on... If deficits don't matter, then debt won't matter, so why not cancel all the federal debt and start all counting from zero, instead of going into cumbersome trillions or even quadrillions (see Japan). The sad reality is that, in spite of all the MMT bullshit, debt (and deficits) matter a great deal because all central banks issue currency in exchange for debt with the explicit expectation that it will be fully paid back ! Cancelling debt would instantly create a corresponding amount of excess liquidity (or money with no "coverage", if you wish). As Kyle Bass said when asked, a few years ago, cancelling debt would instantly detonate the currency...

ltsgt1's picture

Deficit is no burden in a Ponzi Scheme as long as there are new suckers/investors. China, like Europe, has become aware of the scheme and looking to break free. TPP is the ongoing endeavor to recruit new suckers to support the dollar.
So, enjoy the deficit is no burden as long as we still can.
I thought the Chinese are smart but apparently they are as stupid as most Americans. They are exchanging yuan for dollar instead of PMs!

monk27's picture

If you need some cash at hand, right now the Chinese would be better off having some dollars instead of yuans, especially since they expect further yuan devaluations. However, they are definitely not stupid, so their price of gold is quickly "getting there"...

Handful of Dust's picture

I remember when people there were dumping both yuan AND dollars in order to buy moar eruo.


My, have times changed!


And change again, they will!

... and they'll be standing in line to change those dollars into something else, again.

Rabbi Chaim Cohen's picture

All this seems to kinda' be throwing water on the plans to eliminate petro dollar supremacy, eh?

monk27's picture

Why ? Say you are a company from a third party country (not US) who wants to buy a shipload of laptops made in China. Are you going to insist in paying with expensive USD which you don't have (even when the Chinese themselves would accept yuans that you might have) just because their stock market is going down ? Where's the logic in that ?

Irish Yoga's picture

It's kinda like buying one used shitty roll of toilet paper and replacing it with another shitty roll of used toilet paper. You'll still be in the shit.

The Duke of New York A No.1's picture

They are ... the 2015 year-end numbers are in;


The SGE (Shanghai Gold Exchange) delivered 2,597 tons of AU to customers during 2015.


The COMEX only delivered 44 tons of AU to customers during 2015.


The SGE delivered 59 times more Physical Gold to customers than the COMEX during 2015.

daveO's picture

Using 2014's numbers, that number is 187 more tons than the rest of the world's production combined(2410 tons). Time to crash their economy with higher US rates. 

Kaiser Sousa's picture

"Saudi Arabia should use its massive foreign exchange reserves to defend the riyal, amid fears the world is descending into a new phase of global currency wars, the World Bank has said. The kingdom’s shaky currency peg with the dollar has come under record pressure this week as the price of oil has plummeted to near 12-year lows at $32-a-barrel.

With the global stock markets in turmoil, analysts fear a Saudi devaluation could spark a new wave of deflation and competitive “beggar-thy-neighbour” policies in a fragile global economy.

But the world’s largest producer of Brent crude should continue to defend its exchange rate by drawing down on its war chest of reserves, according to Franziksa Ohnsorge, lead economist at the World Bank.“For now they have large reserves, and reserves can be used during an adjustment period”, Ms Ohnsorge told The Telegraph.Oil accounts for more than three-quarters of Saudi Arabia’s government revenues. But a record supply glut has led to the kingdom burning through its reserves at a record pace in order to defend its 30-year-old exchange rate regime."

Gold and Silver....only.


mvsjcl's picture

Good to see you, Kaiser. I usually read your posts for their content.

Kaiser Sousa's picture

thank u...that is very kind

just trying to spread the light....

manofthenorth's picture

I would bet that there are longer lines for PMs than Dollars.

abyssinian's picture

There isn't line for PM because no one is selling any in China, Hong Kong

Handful of Dust's picture

There's actually several stores in Beijing alone and they are very very busy. When I was there they were packed. One elderly lady bought a solid 24k gold dragon that cost over $18,000 usd. The store has guards who will accompany buyers to where ever they want to go with their, house, whatever.

mickeyman's picture

Not to mention the banks all sell gold.

Unfortunately, the premiums (here in Zhengzhou, at least) are too high for my liking.

38BWD22's picture



There is no doubt that the US$ has done much better than most predicted.  The dollar will likely continue to be strong in the short-term vs. other currencies.

But, at some point gold, silver and platinum will be excellent to own.

Maybe even (up to) 1% of your money in Bitcoin.

edotabin's picture

Blasphemy !!!! The dollar will do well?

You didn't hear about the new Iranian missile capable of downing all US planes anywhere in the world simultaneously?? It also, creates a spike in the Russian currency when launched !

slammin_dude's picture

They most likely are buying gold and silver....and getting dollars for what Au and Ag they can't get

Banks sell gold and silver there...unlike here....another shill article from ZH, nice to see the rothschild assfucks have infiltrated everything

skinwalker's picture

I wish I could obtain more dollars, but my bank is unwilling to release large quantites to me. Even though on paper I can afford it. 

truthalwayswinsout's picture

I go once a week and withdraw the sums they let me without their complaining (usually this is from $6-$7k) . I may not get it all out before a banking collapse but at least I will get most of it.

Another trick I used was to tell them to buy treasuries for me and to have them delivered to me. That worked and I had them put the money in very short term notes. I can then cash them in at different banks for cash which I have started to do as they mature.

Sudden Debt's picture

And over here, people should realize that all funds are massively invested in China

so if they crash... al the savings of people who don't even know they had savings over there will be lost.

Just ask people where there pension fund is invested. They'll only be able to give you the name of there pension fund.

Trust in people they don't know...


ebworthen's picture

My Sister was told that her 401K was "fully vetted"; and she asked me what that meant.

I said it probably meant that it could be "vaporized" at a moments notice.  She gave me funny look.

logicalman's picture

Fancy tin box.

Likely a rich jerk at the wheel.

A giftwrapped turd is still a turd.


greenskeeper carl's picture

You should mention that the very same people who soldher fund the garbage it is now doubt invested in are allowed to bet against that very garbage they sold your fund(and probably are)

Ignorance is bliss's picture

Out of the frying pan into the fire. The common man in all countries are screwed.

Scooby Dooby Doo's picture

The signs in photo 2 & 3 are in Russia.....

Scooby solves another caper.

bruno_the's picture

correct. you can see the christmas tree - december 2015?

ZH is getting sloppier by the hour. If they keep on going down in reporting quality as they do in 2016...,37.5969091,3a,22.2y,58.05h,85.63t/data=!3m6!1e1!3m4!1s4XFdOL3x7cckj3XhkmbezA!2e0!7i13312!8i6656!6m1!1e1

old naughty's picture

Good catch.

Will Zh continue to be accesible in China?


OldPhart's picture

Any idea why google blurred out the bottom of the rates on two sides?

FIAT CON's picture

Google being funded and created by the .CIA. they may have their reasons.

Skateboarder's picture

No shit, Scooby - youse a right.

Google by image showed those pictures were from a FT article featured on ZH a little over a year ago:

Tyler is being lazy, or sensationalizing, again. Come on Ty, hold it together dawg.

Global Hunter's picture

Good call Scooby!  I completely missed that but I went back and the Russian Cryllic alphabet is clearly visible in the one pic where you can only see the backs of the people in line.

skinwalker's picture

If you read the article closely, they were referring to the lines in russia ealier and offered these pictures so you compare them against the lines in china. Nothing sinister. 

Skateboarder's picture

No shit skinwalker, youse a correct too - missed that skimming through. My apologies to the Ty-man.

Fish Gone Bad's picture

Western images of Russia are usually dark, cold, and hostile. Two out of three for these two.

Scooby Dooby Doo's picture

At least it does now...... :<~

nc551's picture

I thought it was more lying with pictures too at first.  They have done it before.

Scooby Dooby Doo's picture

Which was added after Scooby solved The Caper of the Misplaced Photos!