Having apparently taken the day off from selling US Treasuries and buying Offshore Yuan (following yesterday's "murderous" short-squeeze"), completing a 40 handle round trip in the "stable" currency year-to-date, PBOC decided to hold Yuan flat for the 4th day but make a statement that they would "give policy support to exports" - in other words devalue more. The unintended consequence of their decision to withdraw liquidity and crush shorts in offshore Yuan is more problematic as it has reportedly left Chinese banks short of dollars at their ATMs (and are delaying withdrawals). Meanwhile, another of China's favorite outlets for capital outflows - Bitcoin - just got stomped.
"Stability" - apart from in money-markets and offshore Yuan...
As Offshore Yuan roundtrips 40 handles...
So a free-floating curreny as blessed by The IMF will only be allowed to move as The PBOC decides (as opposed to those nasty carry trade speculators):
- *YUAN EXCHANGE RATE SHOULD BE DETERMINED BY ONSHORE MKT: DAILY
- *PBOC NEEDS TO LEAD FOREX MARKET EXPECTATION: DAILY COMMENTARY
- *CHINA SHOULD CONTROL YUAN SUPPLY IN OFFSHORE MARKET: INFO DAILY
But then this...
- *CHINA LIKELY TO GIVE POLICY SUPPORT TO EXPORTS THIS YR: DAILY
Which rougly translated means - pile on into shorts and we are going to devalue until exports pick up.
Of course the whole world is waiting for China trade data tonight.
However, it seems someone just stomped on Bitcoin - one of the Chinese favored outlets for capital flows - to show tthat the 'transitory' capital controls can't be worked around
On heavy volume.
By way of a reminder, this is what was said last night...
A jump in the overnight cost for borrowing yuan in Hong Kong is "reflecting further PBOC efforts to stamp out speculation," according to Michael Every, head of financial markets research at Rabobank Group. Hong Kong-based Every told Bloomberg in an interview, following a massive spike in overnight borrowing rates for Offshore Yuan that "a 66% rate is murderous for others being swept up in this who are not speculating."
PBOC advisor Han earlier warned that short selling the yuan "will not succeed," adding that "it is pure imagination that the Chinese yuan will act like a wild horse without any rein." But as Every notes, the unintended consequences could be a problem, "imagine you needed access to CNH for other purposes for a few days," concluding ominously that "in other EM crises we see that central banks usually win a round like this, but lose in the end."
Sure enough: *SOME BANKS IN BEIJING, SHANGHAI RUN SHORT OF DOLLAR BILLS: 21ST
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 reports, citing reporter’s investigation.
BOC, CCB, China Merchants Bank in these cities require appointment at least 2 days in advance for >$5,000 purchases; appointment could take as long as 1 week at some branches.
So in their haste to withhold liquidity and spank the spceculators, The PBOC may have just started their very own domestic bank run...
Coming just 2 days after lines began to form at currency exchanges (as Chinese want Dollars for their Yuan),
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.
We are sure Ms. Lagarde is produly standing by her decision to allow this "free" currency to be part of the SDR basket.
But then again - this is what "frozen liquidty" really looks like in China...
Charts: Bloomberg