International borrowing and the US dollar

• Some market participants are worried about the ever rising market value of US borrowing vis-à-vis the rest of the world – as measured by the Net International Investment Position
• Currency depreciation can function as an effective method of adjustment following an increase in external borrowing
• However, there are reasons to be cautious about this line of thinking, especially with respect to the US dollar. These include asset valuation effects, and the role of the US as a global facilitator of excess saving.

Recent trends in the RMB

This year the RMB has bucked its recent trend and remained broadly stable against the US dollar for the first half of 2017. As the US dollar retraces, the RMB has softened against its main trade partners.

For Policymakers, this is a convenient outcome, though there exists a delicate balance to maintain and the recent change to the PBoC’s fixing mechanism looks to be a reflection of this.