Posts

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.

China: macro myth-busting

• In this blog post we offer our thoughts on three strategically important questions regarding China’s macroeconomic and FX policy, for which there appears to be little consensus.
• A disaggregation of the decline in foreign exchange reserves and the balance of payments reveal some less sinister causes of reserve drawdowns and capital outflows
• Looking at the bigger picture, we believe China is stuck in an uncomfortable position within the “impossible trinity” and see further exchange rate and capital account liberalisation key factors in finding a new equilibrium.

Asian “Currency Manipulation” : Mainly a US Concern ?

• The US has had a long standing concern about what it perceives to be excessive “currency manipulation” on the part of some countries, especially in Asia. This concern is primarily driven by the large and persistent US current account deficit, which will necessitate significant relative currency adjustments for it to at least begin to unwind.

• A problem with this view emanating from US officialdom is that the pass-through effects between currency movements and domestic inflation in the US has been shown to be weak, thus making the process of adjustment more drawn out at best, and ineffective at worst.