China

FT Alphaville asks: Is the Renminbi overvalued?

While still an unpopular opinion, FT Alphaville explores the possibility that China’s currency is overvalued in light of the contraction of the PBOC’s foreign reserves in April as the yuan depreciated against the dollar.

“A chronic trend of this sort would indicate that the yuan was now overvalued versus the dollar,” Alphaville says. Read more

Why FX deposits surge in China

China’s monetary statistics for April 2012 showed weakness in both loan and deposit growth. In particular, Renminbi deposits fell by 465.6bn yuan, compared to a 342.4bn increase in April 2011. However, bank deposits denominated in foreign currencies (FX deposits) in China have been surging since the beginning of this year. FX deposits increased by 32.5% in the first 4 months of 2012, compared with 6% growth in the first 4 months of 2011. Every month there is about 20bn USD added into the banks’ deposit accounts.

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PBoC against the market on USDCNY

We update our USDCNY interday-intraday framework, which was first proposed here. The advantage of this framework is that it decomposes USDCNY movements into two parts and thus distinguishes market view from PBoC’s view on USDCNY, which are often in opposite positions.

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Renminbi Swap Lines

Last week the central banks of China and Australia announced the creation of a $31bn currency swap line. Like every such agreement, it was hailed as another step towards the renminbi's displacement of the dollar as the world's reserve currency. Are the renminbi swap lines in fact a genuine step forward for the internationalization of the RMB? Read more

China’s FX Flow Framework

During the “Two Sessions”, China’s Premier Wen Jiabao and the State Administrator of Foreign Exchange Yi Gang both said that the Renminbi might be close to the “equilibrium” level. This top-level comment could probably mark a much lower Renminbi appreciation this year and the advent of RMB’s two-way floating process. Last September, the long-standing consensus of one-way Renminbi appreciation was challenged for the first time since 2005 when the PBoC allowed Renminbi to appreciate against USD. Afterwards, in the onshore market, USDCNY hit lower trading bound set by the PBoC for 12 consecutive days in December; FX purchase by the banks dropped for three straight months in Q4. Read more

Relaxation on loan-to-deposit ratio?

An interesting debate is taking place among the top financial regulators and bankers in China. Read more

Delicate balance

The current account still matters, but other things do too, and maybe more. In light of recent focus on gross flows, here and elsewhere, I want to argue for the language of the balance of payments. This language has a quaint feel to it, and my sense is that economists view it as archaic and outmoded. I am certain, at least, that one can get through grad school with no fluency in it. Read more

A Structural Change in CNY Selloff

Following our previous posting on USDCNY decomposition, we further explore the intraday movements in recent three months, and its difference with 2008 CNY selloff period.

 

                    Source: Bloomberg. Data as of Dec 30, 2011.

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Overview of PBoC Instruments

As a seminar focusing on China’s monetary policy, we’ve always been interested in the use of monetary instruments by People’s Bank of China (PBoC). In this posting, we’d like to wrap up the core elements of our past discussions on PBoC instruments.

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Interday and Intraday Movement of USDCNY

Suggested by our instructor Logan, we draw the following chart, which decomposes onshore USDCNY price movements into two parts, interday and intraday.

 

            Source: Bloomberg. Data as of Dec 16, 2011.

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