Hello IMF, the yuan is pegged

See the latest Australian dollar analysis here:

Macro Afternoon

From Reuters:

International Monetary Fund staff are set to give the all-clear for China’s yuan to be included in the lender’s benchmark currency basket, laying the groundwork for a favourable decision by policy makers, people familiar with the discussions said on Sunday.

The IMF’s executive board is scheduled to decide in November on putting the yuan on a par with the dollar, yen, euro and pound sterling and a key factor will be its performance against a checklist of technical criteria, as assessed by IMF staff.

Three people briefed on the IMF discussions, who asked not to be named because of the sensitivity of the issue, said a draft report from staff reached a favourable conclusion on including the yuan, also known as the renminbi (RMB).

“Everything is on course technically and there is no obvious political obstacle. The report leans clearly towards including the RMB in the (basket) but leaves the decision for the board,” one of the officials said, adding that a penciled-in early November date for staff to circulate their report to board members has been pushed back by several weeks.

Two other officials said staff would recommend the yuan join the basket, which determines the mix of currencies that countries like Greece receive as part of disbursements from the IMF.

Hello? The yuan remains thoroughly pegged to the US dollar. And although it is moving towards a free float it is not there yet and if it were it would crash which is why China is increasingly installing all sorts of capital controls, also hardly in the spirit of a reserve currency.

This is Chinese diplomatic not economic power at work.

Houses and Holes
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  1. Do you ever get the sense that the Chinese don’t understand their currency cannot be treated like a reserve currency unless it is free floating?

    • Its almost like people don’t understand that Pound, Yen, Dollar, Euro are even more manipulated than the Yuan – almost – but of course that would be crazy, because then this would just be blatant racism.

      • To true, its just the chinesse are a bit more open about their manipulation. Isnt the way of the west much better!

      • Reminds me of a guy I used to know. He said,

        Chinese businessmen will rip you off blind, and will not dispute the fact.
        American businessmen will rip you off blind, but flat out deny the fact.

  2. As the move away from fossil fuels and excessive mineral extraction abets, one has to fundamentally challenge the notion which underpinned currencies in the past…. demand might be the last – only quantifier moving forward and China does have a massive base.

    • Except that they don’t.
      This is exactly the problem with their growth model. Chinese demand is inadequate and has resulted in massive over capacity issues/reliance on investment and the external sector.
      They have the POTENTIAL for demand growth but to realise that potential there needs to be institutional change which can only come with political change.

      The relative lack of Chinese demand is probably the biggest structural economic problem the world has.

      • Except that is rubbish perpetuated by this blog.

        China’s transition into a consumer based high tech, entrepreneurial knowledge society is doing incredible well. Having moved away from the most heavy resource requiring, energy demanding market focus of housing construction slashing almost 20% of the economy straight off the page – and into consumer based bas resulted in an economy growth rate of %6.9 – THREE TIMES HIGHER than any other major world economy.

        So yeah – maybe the MB Koolaid needs a little diluting.

    • That trillion….what is going to be sold to allow that to occur? Whatever it is, even if it’s Magic Money from the ECB, it will be a drain on all other economies that need that capital in their domestic currencies for their own expansion, exacerbating the deflationary spiral. And…..do we really think that after the inflow, the PBoC will then not devalue?! (The last thing the PBoC wants is a stronger yuan?)

      • That is the question….
        The Chinese economic model has always been parasitic and involved sucking capital and growth from other parts of the world. Therefore no change in that regard here.
        Is the rest of the world still so stupid and naive to buy into the fantasy? Maybe if what we saw from the UK last week is any guide.

        That trillion is just a figure which got quoted in this article. I have no idea whether it is likely or not.

      • Its almost like the $20 Trillion the US has pumped does’t even rate a mention ? Nor the Japanese, British or EU.

        Just those slanty eyed Chinese ?

        Seriously – this entire thread is a joke – every single reserve has been engaged in a currency war – singling out China is pure racism.

  3. LMFAO – what a ridiculous post. Bordering on perverse racism.

    China is the worlds largest manufacturer, worlds largest economy (1.4 Billion) , worlds largest market, worlds largest exporter and now global super power leading the world in most technical areas.

    To NOT have China as part of the reserve when the Yen, Euro or pound sterling IS part of it is absolutely risible SHIT.

    No question about that. Its not politics to include it – its pure economics – its the central powerhouse of the entire planet – rather to try and argue AGAINST its inclusion is pure politics and utterly self serving – this blog has gone full retard on China.

    But whats even WORSE is accusing China of pegging its currency – Japan has had an apoplectic melt down in its quantative easing, pumping money like a two bit hooker on a vegas bucks night – and yet you accuse China of currency manipulation ? Seriously WHAT THE FUCK ?

    The United States has been smacked out of crack, smeared and stained in its own vomit from binging on money printing to the tune of almost $20 TRILLION in under a decade ?!! But OH NOES CHINA HAS done what every single other nation has done and is therefore not legitimate ?

    Does this blog have ANY SENSE OF SELF RESPECT AT ALL ?

    Just an INANE post of the most risible kind.

  4. I think some are over doing things a bit with the reserve currency issue, why on earth would China want that distinction, not to mention they have completely dismissed a desire for such. Its only policy was to have a seat at the SDR table, nothing more.

    Skippy…. too much personal feelings seem to interject themselves when ever the topic is China or Russia… old habits maybe – ????

    • It brings capital into the Chinese financial system.
      Entry to the SDR sees central banks re-weight their currency holdings to include Yuan assets.
      This might allow some limited deleveraging/additional leverage to prop growth up.

      On the last point, this board is seeing organised trolling because MB now has a profile as a source of Chinese government unfriendly commentary.

      • It cuts both ways with all SDR participants, tho I would remind that a great amount of retail in London and other Capital city’s was bailed out by the newly minted Chinese wealthecrats post GFC.

        Skippy…. I stick with the historical Geopolitical perspective, China does, what it does, to secure its traditional sphere of ethnic influence and nothing more….

      • @Gramus. Certainly seems to be the case. Some of the comments now are barely worthy of zerohedge.

        Some quite rabid rantings – have the Wumao crowd discovered this site?

        The economic illiteracy is evident in the on-going, repeated shibboleth that QE is “money printing”.

        I’ve said it before, but I’ll say it again; I used to enjoy reading the comments here and I could learn a lot. Now, not so much.

      • Its so awesome of you responding to everyone’s comments which are not 100% conforming to your own beliefs with kow-towing platitudes accusing them of being paid disinformation agents.

        Intelligent, mature conversation addressing the counter arguments.

        Just mindless inanities like this –


        Its just sad to see shitty far right wing racist websites like Australia First leaking all over Macrobusiness.com.au with their “super smart brilliances of mentalist ideas like”…


        Go back to which ever property forum you crawled out of.

  5. America, Europe, Japan, all bankrupt and printing trillions of dollars to pretend they are not bankrupt, Americans are the worst offender by paying their debt to others with printing paper, at least the chinese has the factories and workers and the technologies to make something tangible

  6. Another MB piece of misanalysis. The fatal flaw with MB is that you guys see value USD as fixed store of value when it clearly isn’t. There is a USD dollar bubble building at the moment with everyone doing QE but with the Fed TALKING about raising rate, that’s why the USD is so over-valued against everything and that’s why the YUAN is trying to devalue against the USD.

    Same BS argument about Australia must devalue against USD for a viable economy baloney as if USD is gold and can’t be easily printed. When will you guys wake up.

    There is no Yuan bubble, it’s a USD bubble stupid.