Can China prevent a yuan crash?

Readers will know that my base case for CNY over the past year has been large falls. These are now underway. Given the extent of Chinese challenges around property, zero-COVID and exports, there is also a risk case that CNY falls could get out of hand. This is not my base case but is a tail risk given geopolitics, the declining trade surplus, shrinking yield spreads and self-fulfilling FX losses.

ANZ today examines how this might avoided.

China’s FX reserves may fall below USD3trnChina’s foreign exchange reserves slid toUSD3.055trn as of end-August, the lowest in four years. Yesterday, the yuan weakened to 7 per dollar in offshore markets, amplifying market attention on the drop in the country’s reserves. According to the State Administration of Foreign Exchange (SAFE), the decline is caused by the following factors：

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.