Weakness is strength. With such a yuan, no dollar is scary!
Washington said Beijing did
We have been scared for so long by the coming fall of the dollar that it was not at all scary. Characteristically, Washington did not dare to make any direct statement that the dollar would be nice to lower. Such maxims were left to the analysts of leading banks, and only as a last resort - to representatives of the Fed. However, for a long time, everything was limited to hints and half-hints.
Beijing, without warning, did exactly what Washington was threatening. Now, from the People’s Bank of the Celestial Empire and even from the Central Committee of the Communist Party of China, they can say as much as they like that no manipulation of rates by China is carried out, and the decrease in the renminbi is caused by objective factors. However, you won’t go against the facts.
On August 5, the People’s Bank of China lowered the renminbi (more precisely, renminbi, this is the official name of the Chinese currency) to the dollar to a minimum: the average exchange rate at the level is 6,9225 per dollar. This almost immediately followed by a drop in exchanges below the key mark of 7 yuan per dollar.
The Chinese authorities commented on the fall of the national currency with a statement that “trade protectionism” and increased tariffs on Chinese goods in global markets are to blame. According to experts, the fact that the addressee claims the United States, no one doubts.
After China actually allowed the yuan to fall to the dollar below 7 yuan, the US president said: "This is called" currency manipulation. " Federal Reserve, do you hear? This is a serious violation that will weaken China significantly over time! ”
Recall, the other day, the American administration introduced 10-percent duties on Chinese goods for an impressive amount of 300 billion dollars. This measure will begin to operate on September 1, and the US President called the reason for it the failure of Beijing to fulfill promises to increase purchases of American agricultural products.
In response to this news, signifying the abolition of all ceasefires in the trade war with China, financial markets around the world have collapsed. The first Asian sites collapsed, and after them the American indices sank. After oil quotes fell immediately by seven percent, a stronger dollar became almost inevitable. Against this background, a targeted depreciation of the renminbi might not be necessary.
And a very small yuan!
The reasons for the constant attacks by the US administration and the Fed on the Chinese Central Bank are well known: the regular weakening of the renminbi has given and is giving significant competitive advantages to Chinese products.
In recent years, the yuan has depreciated against the dollar three times, and only slightly strengthened once - at the end of the 2017 year, by 6,2%. At the same time, in 2015, the yuan fell against the dollar by 6%, in 2016, by another 6,7%, and at the same time updated several minimum values at once for eight and a half years. Finally, in the last 2018 year, the yuan rate again fell to the dollar - by 5,1%.
The immediate reason for President Trump's speech was the fact that over the weekend, the Chinese currency broke the key threshold of 7 yuan per dollar for the first time in more than ten years. On Monday, as soon as Washington was lit up with its accusations, the head of the country's central bank And Gang hastened to declare that China would not use the yuan as a tool to deal with external shocks. Among them, Comrade I named trade disputes.
The statement of the main Chinese banker was published on the website of the People’s Bank of China, and it is clearly stated that the PRC "will not participate in the competitive devaluation of the renminbi." Moreover, the authorities "will maintain stability and consistency in the policy of foreign exchange regulation."
It is not entirely clear why it was necessary to justify oneself who directly calls the presence of communist China on the world market an inevitable evil. And this is with extremely strict state regulation of the economy and finance of the country. Are the Chinese comrades afraid of falling under sanctions or being expelled from the WTO? But this, as the classic says, cannot be, because it can never be.
Today is Hong Kong, tomorrow is Iran
It should be noted that even before the decision on the September duties was made, Trump tried to arrange something like blackmail for the Chinese opponents, saying that the trade agreement should be signed before the fall of 2020. That is, before his possible re-election in the presidential election. Otherwise, the terms of the transaction will be more stringent in the future, Trump threatened. An additional factor of pressure on opponents in the trade wars was the decision to lower the Fed discount rate.
The fall of the renminbi is unlikely to be a direct response to such pressure. However, one cannot but give credit to the Chinese bankers for the fact that they are so skillfully able to turn the almost inevitable defeat into victory. After all, it is possible that the Chinese leadership was forced to go on term games with the yuan, among other things, by the difficult situation in Hong Kong, which could spoil almost everything in the established mechanism for financial support of all Chinese foreign trade.
It is by no means accidental on the same site of the NBK that the renminbi is currently at an acceptable level in accordance with China's fundamental economic indicators and market demand and supply. So says the head of the NBK, who at the same time noted that the central bank has experience and the ability to maintain stable operation of the foreign exchange market.
The Chinese government, usually unhurried in its decisions, immediately answered Trump's harsh criticism even more harshly. And much more specifically. Bloomberg reported that it had already ordered Chinese state-owned companies to suspend US imports of agricultural products. Well, the next step in opposition to Washington could well be a decision to increase oil purchases from Iran, which the Iranian media have already managed to tell, and not without their usual anti-American sarcasm.
Will the dollar win back on the ruble?
Monday became one of the blackest on Wall Street. This year, such a strong drop in quotations has not yet been noted. In conditions of moderate but stable growth of the American economy, the loss per day of 3-3,5 percent is a lot. And the forced purchase of US bonds, a recognized reserve asset, overturned all the calculations for at least a minimal weakening of the dollar, which Trump and the Fed so craved.
However, the US Federal Reserve is to some extent to blame for itself, since it did not support a one-time reduction in rates by any statements that the reduction will continue. It seems that the People’s Bank of China has decided to take advantage of even such an insignificant factor.
Having received a blow below the belt from China, the Donald Trump administration is already in a hurry to recoup on someone else. And since she already has practically nothing to take from Iran, Russia may well become the addressee. Moreover, Trump one way or another needs to “excuse himself” from accusations of having ties with the Russians and readiness for a constant dialogue with the Russian leader.
The next package of anti-Russian sanctions tied to the "Skripals case", which seems to be bothering everyone, could be regarded as a very serious blow if it were not a blow to the void. The fact is that the first and main sanction (restrictions on operations with the Russian public debt) is very selective and concerns only the initial placement of foreign currency bonds.
That is, ruble bonds can be bought by anyone and any number. The clarification of the sanctions package says: "The ban does not apply to bonds or loans denominated in rubles" and the sanctions "do not prohibit US banks from participating in the secondary market of Russian sovereign debt."
In addition to such, frankly, strange manipulations regarding our debt securities, the new sanctions provide for another “technical” ban on the financing of the Russian government by the IMF and the World Bank. But for almost ten years now we have had almost no relationship with them.
What’s called, they’ve settled and forgotten, we don’t even want to listen to the recommendations. But President Trump and his colleagues are ready to ban even the World Bank and IMF, that is, "providing the Russian authorities with" technical "assistance." By such help, as a rule, we mean just all sorts of consultations on macroeconomic policy. Including the notorious detailed IMF reports.
Once upon a time, pressure on Russia through loans from the IMF and World Bank was indeed very strong. Our budget simply burned and burst without regular tranches, although for some reason each of these tranches was invariably accompanied by an increase in construction activity in a number of elite villages near Moscow.
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