How China Almost Ran Out Of Physical Dollars
On Tuesday, we weren’t surprised to learn that some banks in Shanghai and Beijing were apparently running short of physical dollar bills.
According to Ming Pao, Shanghai residents were lined up at local banks in a frantic effort to sell RMB for USD amid China’s ongoing yuan deval.
“Some banks in China’s Beijing, Shanghai and Shenzhen ran short of dollar bills for cash withdrawal amid increasing demand for the currency,” 21st Century Business Herald added, citing a reporter’s investigation which showed that “BOC, CCB, and China Merchants Bank in the listed cities are requiring an appointment at least 2 days in advance for >$5,000 purchases.” The appointment “could take as long as 1 week at some branches,” the paper said.
Why the panic? Because, in the simplest possible terms, no one has any idea what Beijing’s target is for the yuan.
In fact, no one even knows if the PBoC has a target at all or if China is simply flying by the seat of its pants managing the glidepath on an ad hoc, daily basis depending on how wide the onshore/offshore spread is (a proxy for the pressure on the currency).
One thing seems certain though: a much bigger “adjustment” will be necessary if China hopes to stabilize its economy by propping up exports. As Deutsche Bank noted last week, if global currencies continue to slide against the dollar, the yuan will need to fall if China hopes to keep its new trade-weighted RMB index from rising.
As long as the deval continues in a kind of fits and starts fashion, the capital flight will continue. That is, the only way to stabilize the situation is to allow the market to decide where the yuan should trade once and for all, a painful option in the short run, but a move that would keep the country’s capital account from dying a slow death by a thousand paper cuts. As Morgan Stanley puts it, "the capital accoount [currently] dominates the current account."
Now, as the turmoil continues (temporarily “better” trade data notwithstanding), WSJ is out with an account of how China is rapidly running out of physical dollars. “At major lender Industrial & Commercial Bank of China Ltd., one banker said the number of people wanting to change yuan for dollars has increased significantly during the past three weeks—a period during which the Chinese currency has declined about 2%,” WSJ begins. “During the weekend, ICBC received an urgent notification from China’s central bank warning of a dollar shortage, he said.”
ICBC customers are now subject to the same kind of waiting period described earlier this week by 21st Century Business Herald. The bank is now requiring a four day advance notice on FX exchanges presumably in an effort to manage the flows and ensure the cash is available.
Chinese are only allowed to exchange $50,000 per year (although between the various "Mr. Chens" and end-arounds like the UnionPay ruse there are plenty of ways to circumvent the captial controls) and WSJ suggests the selling pressure may be particularly acute now because everyone is starting with a clean slate for 2016. "Since China’s strict capital controls limit Chinese consumers to purchasing $50,000 worth of U.S. dollars each calendar year, January is also when they can start buying again with a fresh quota," The Journal continues, before quoting Harry Hou "who works in the financial industry in Shanghai, [where] he, his wife and parents bought their limit of $200,000 last year, and started buying dollars again through China Merchants Bank’s online service as soon as the New Year kicked in."
“This year’s biggest market risk is not going to be [stocks] but the yuan. The government has let the yuan fall in the past, allowing it to weaken to 8 yuan from 5 yuan against the dollar in the 1990s," Hou said.
And while Chinese authorities are doing their best to control the flow by cracking down on quota abusers and asking banks to make lists of those suspected of skirting the rules, the only way to stop the bleeding is to convince the market that the deval has nearly run its course. That won't be easy, especially with the onshore/offshore spread blowing out, persistently lower nightly fixings, and a trade-weighted RMB that's still substantially elevated from a historical perspective.
In fact, Chinese are so convinced that there's more downside to come that exporters are executing a daily arb. "James Mao, who runs a Shanghai-based company that exports biochemical materials from China to the U.S., says he is asking Chinese suppliers to wait for a few days to get paid, since he thinks he can get more yuan for those dollars later," The Journal explains. "Exporters are required to sell the foreign currency they obtain from trade to the central bank, but there are no rules on when the transaction needs to be done. So far this month, Mr. Mao says he pocketed an extra $2,000 by waiting longer to convert his dollars to yuan."
Remember China, if the banks run out of dollars or if you find yourself having to wait a week for your greenbacks, there's always Bitcoin.
And there's always Chen.
(10 votes)
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I take it there are some heading their way aboard the USS Bernanke.
While the Yuan is Scott Extra Soft and the USD is Charmin Ultra Soft, they are, in fact, both toilet paper.
<Bottoms up!>
After I hit the Powerball tonight I'll be wiping my ass with silk until I end up in a trailer park- broke, divorced, drug addicted and wondering how the fuck all that happened to me.
If you win I'm coming with you
With a BILLION dollars, I'm taking EVERYONE on ZH with me. It's gonna be hookers and blow (for serious) until the money's all gone. Foot to the floor until the gas tank is empty.
You'd make a great central banker. :-)
I'm thinking, if we start at a trailer park it will feel like we haven't fallen very far in the end...
NoDebt for President!
I second that nomination!
Do we have a quorum? Oh fuck it, they didn't have one on Christmas eve 1913.
Ricky: "You're right, temp, Julian and I can only go up."
He is a central banker!
I've been nearly 5 years brah.....the only thing I like more than blow is hookers!
Hope you win!
I love you.
https://www.youtube.com/watch?v=_28MWafggX0
No thanks. I do not want to end up in the Trailer Park dead broke and drug addicted.
But I do appreciate your sentiments...uh...not.
On the other hand I wish you well and healthy.
THAT would never happen to me.
Mike Tyson?
https://www.youtube.com/watch?v=_28MWafggX0
Thing is about one out of 12 rolls of that renmibi Scott leaves a golden parachute ply around your ass while the USD Charmin will leave a golden dildo up your ass 12 for 12. I'd certainly take a chance at a golden parachute over an ass fucking all day every day... Demand for USDs, what a bunch of dumbasses people will laugh at this article someday, I'd gladly take anyone's uunwanted renmibis, especially now
So how long before US exporters start screaming under the pain of a strong dollar?
US exporters?
US exports $ & military industrial complexities.
Can't decide if that one deserves a round of applause or it's own laugh track. Maybe both.
Strange coincidence, I went to my local ATMs today and they were all out of yuan.
If there's one thing even everyone here at ZH can agree on it's this. I believe our government can print money faster than any other on Earth, and will replenish the Chinese shortly.
They are proficient in digi-bucks. In anything physical, not so much.
Don't worry, Yellen has plenty.
Ask yourself WHY people in CHINA would want physical U.S. Dollars in the first place.
Ask yourself WHAT people in CHINA would do if they could not trade their Renimbi for physical U.S. Dollars.
Must be the top of the dollar bubble if regular Chinese ppl are lining up to buy them .
I'm calling it right here. The top is in.
Interesting thought, + 1
They'll buy buttcorns (more, I mean).
I live in China and have no reason or benefit to lie, unlike the Mordecai Murdoch owned WSJ, and I have a word for ya, that farts in the face of this post....Gold.
That us something that occured to me reading this. As much gold as China has bought, it can't be that hard to buy some there can it? Why the hell would they want dollars? Then again, I hear the Chinese will bet on anything. Maybe this is like powerball tickets to them.
You're right there, the Chinese will bet on anything, but that's what happens when .gov make something illegal, it makes it all that more attractive.
May have to use that "precious", sooner than they thought.
after all, you got plenty based on what I hear
Uh, why don't the Chineese citizens just buy Gold ? Anyone ????
The WSJ was running the article eh ?
Pliskin: Are people in China lining up to buy Gold as well ? My guess is that the line for Gold is 5X the line for $US.
I've never seen anyone lining up to buy Gold..or U.S. Dollars, but most people I speak to and ask about this, and other problems in the Chinese economy, always say the same thing...Gold.
Around the Chinese New Year, February 8th this year, people give gifts of money in a red envelope (Hong Bao) This is the first year I've seen that people are buying small decorative red boxes, to give gifts of gold.
You can't spend Dollars here, unlike in Cambodia, Laos or Vietnam, where lots of the locals WILL accept dollars (Taxis, Shopkeepers, Bars) Try going into a shop here and trying to pay in anything but RMB and the people look at you like you're a dumb, fucking foreigner.
I'm sure there are lots of people, wealthy, upper-middle class types that are buying dollars with their savings, but I call BS on the fact that, as the article states 'China is almost running out of U.S. Dollars'.
I mean, come on, the $ is more common than sea water...and if things keep going as they are it will soon be as worthless as sea water.
Stupid questions for the roundtable:
1. How much higher can the US Dollar go?
2. When do you think it will start down again?
3. What do you think will trigger a downside move for the USD?
Thanks in advance for any answers. Owner of my LCS always says "king dollar will never be dethroned." Yet he sells Au/Ag...
Owning a LCS is a strange thing - you have to prefer dollars over phyzz to some extent since you're mostly trading the later for the former.
Almost?
$usd denominated debt is looking ugly.
They should sell some more treasuries while they can still get a high price for em.
They can't sell the treasuries or they'll kill the price of them much like oil.
When you have so much of the stuff YOU are the idiot because YOU can't get value out of it unless you SLOWLY back away from it and that's probably what they are doing.
China is fooked because they still play in our financial domain. They may want to setup and aleternative and sure they probably will but ONLY after immense financial pain and the kind of pain that causes revolutions.
They are being played and manipulated to join the central banking fraternity and be financially vampired like we were and they're tyring to resist.
It won't go well because the most advance cunning psychos on the planet play for team money.
Just remember that.
I agree with most of what you wrote, but...a revolution, Nah. That's just wishful thinking on the part of the Neo-Cons in D.C.
I tell you this, most (Not all, but MOST) Chinese people hate the Japanese, and they can see that Japan is under the wing of its big, bully friend the U.S. So the thought of Chinese people revolting under the hope of becoming more Westernized (Americanized) and destroying their own 5,000 year history, society, culture etc is just a fantasy played out in McCains et al heads.
The Chinks aren't the Ukies!
And I'd say the same for the Russians, no matter how bad it gets, they will never 'Maidan' Red Square and bay for Putin's blood, yeh, they'll be pissed, but they'll harbour that hatred to the U.S. and its little vassal states like the U.K.
I think if we're talking revolutions the next one could well be a country in Europe, just my opinion.
"They can't sell the treasuries or they'll kill the price of them..."
That's like saying: the enemy can't attack our position because they will take losses.
I think he means they don't want to do it now because they can wait for a better opportunity. They'd rather defer the losses for later on.
We should finish them off and put a ban on chinese products, which are slave labor anyways.
Trade Wars turn into Hot Wars...
So just why do you want the USA to fuck up another nation that has Nukes. Do you really have a death wish?
(Now I do. But I do not want that to happen necessarily. Although we do deserve it...)
A ban wil accomplish little. If you truly want to end imports, you'll want to devalue the dollar drastically. Of course that would bring inflation to us. But you could rest, broke and happy.
How can the Chinese run out of dollar notes? Surely they just print their own like they copy everything else.