China's currency: the RMB, CNY, CNH

Currency values in terms of Special Drawing Rights (SDR)

China's forex follies ~ 14 Sep 2015

The Yuan as a Reserve Currency? Not so fast ~ 14 Sep 2015

USD/CNY reference rate for today set by the PBOC at 6.3709 ~ 14 Sep 2015

Yuan gains as PBOC seen preventing drops before Fed rate meeting ~ 14 Sep 2015

China issues state-firm reform plans, expects results by 2020 ~ 13 Sep 2015

China's economy shows more signs of weakening ~ 13 Sep 2015

China rolls out more flexible reserve-requirement ratio policy ~ 11 Sep 2015

PBOC seen ready to intervene again if offshore pushes yuan too far ~ 11 Sep 2015

USD/CNY set coming up from the PBOC after intervention ~ 11 Sep 2015



Further CNY devaluations likely to drag AUD down ~ 8 Sep 2015



China is dumping U.S. debt ~ 10 Sep 2015

Intervention in CNH narrows CNH-CNY spread ~ 10 Sep 2015

China economy needs a dose of 'acupuncture': Ex-PBOC adviser ~ 9 Sep 2015

Investors buckle up for expected drop in China's forex reserves ~ 4 Sep 2015

Tune in Sunday night for latest read on China's Yuan challenge ~ 4 Sep 2015

Shanghai stocks plunge 4.39% at the open ~ 2 Sep 2015

Asian shares slip as downbeat China PMIs revive growth fears ~ 1 Sep 2015

PBOC seen quitting Yuan support by end-2015 as reserves shrink ~ 2 Sep 2015



Does China really have $3.6tn in foreign reserves?

By Yoichi Takita
2 Sep 2015

Rumors that China is dumping U.S. Treasurys have made market players around the world skeptical about financial conditions in the world's second-largest economy.

The People's Bank of China, the country's central bank, on Aug. 25 cut interest rates and reserve requirement ratios for lenders. Immediately after the move, the People's Daily Online, the mouthpiece for the Communist Party, gave one reason for the bank's looser monetary policy. Given the decline in funds devoted to the purchase of foreign currency, and capital outflows stemming from the cheaper yuan in recent weeks, the lowering of reserve requirements will increase liquidity and help ease upward pressure on interest, the newspaper said in its online edition.

The yuan's devaluation on Aug. 11 has intensified capital outflows from China, making it increasingly difficult for the domestic financial market to raise funds. The People's Daily Online article tacitly acknowledges this problem.

Funds available for foreign currency purchases declined because the authorities had to sell Treasurys to meet demand for dollars and other foreign currencies associated with capital flight. "The PBOC has sold at least $106 billion of reserve assets in the last two weeks, including Treasurys, according to an estimate from Societe Generale," U.S. wire service Bloomberg reported Aug. 27.

Still at the top

Surprisingly, however, China's Treasury holdings have not declined much; it is still the largest overseas holder of U.S. government bonds, ahead of Japan. A key to the mystery is the decline in China's Treasury holdings in Belgium and Switzerland. China has been selling off bonds held in trust by Euroclear, a Belgium-based international clearing and settlement organization, and other institutions. China's foreign reserves stood at $3.99 trillion at the end of June 2014, falling to $3.65 trillion at the end of July this year.

The decline is undesirable from the perspective of the Chinese authorities, who see foreign reserves as a symbol of national prestige. Beijing is probably hoping to save face by maintaining its Treasury holdings.

China is still by far the largest holder of foreign reserves, so why is the country's cashflow problem being discussed in the media? The answer lies in the makeup of those reserves.

According to data from the U.S. Treasury Department, China's Treasury holdings -- $1.82 trillion -- were only about 45% of its total foreign reserves, even at their peak at the end of June 2014. Even if the bonds held by Euroclear and other institutions are included, Treasurys only amount to about half the total.

Turning sour

China invests some of that money in Euro bonds, Japanese government bonds and Japanese, U.S. and European stocks, but "it is unknown how China manages at least $1 trillion of foreign reserves," said a veteran market economist.

Another puzzle is that although the country's foreign reserves stood at $3.65 trillion at the end of July, foreign-currency assets held by the central bank amounted to 27.4 trillion yuan ($4.31 trillion). It thus appears the amount of money the bank has on hand exceeds China's foreign reserves, although the difference between the two would be a foreign exchange loss associated with the yuan's previous strength.

Market players are becoming increasingly concerned that China's foreign reserves might have been shifted to sovereign wealth funds and other financial instruments for unexplained purposes. Reserves have also been used to finance the China-led Silk Road Fund and the Asian Infrastructure Investment Bank.

China has aggressively invested in resource development in Africa and Latin America over the past decade or so, which may account for some of the missing cash.

The recent collapse of global commodity prices threatens the profitability of these African and Latin American projects. A substantial chunk of this investment must have been been wasted. That raises questions about whether the numbers on China's foreign reserves and the central bank's foreign-denominated assets are also being fudged.

The European sovereign debt crisis began with Greece's effort to hide its fiscal deficits. Doubts about the level of China's foreign reserves could spark new a financial crisis. Financial market watchers will be keeping a close eye on whether China is unloading U.S. Treasurys.

Yuan devaluation costs Hong Kong retailers ~ 1 Sep 2015



China is transforming its economy away from export-led growth towards consumption-led growth. This involves the opening of China’s capital account, including global access to its USD 4.5trn domestic fixed income market. It is, quite simply, the biggest ‘big bang’ in world history. Moreover, the RMB looks set to achieve global reserve currency status in 2016, which means that China’s central government bond market increasingly will be seen as a ‘risk free’ market. China’s bond market will ultimately compete directly with developed market bonds, in our view. The RMB will appreciate strongly when QE becomes inflationary in the current reserve currencies, so investors can look forward to not just high real yields, but also to currency appreciation. Within the China fixed income story, we think the municipal bond market is particularly interesting. Chinese banks sit on some RMB 11trn of loans to local governments that have been issued to finance infrastructure investment. These loans are in the process of being swapped to tradable bonds, which will form the backbone of China’s municipal bond market. So far RMB 2trn has been swapped to 1-year, 3-year, 5-year and 7-year benchmark bonds. This market will become central to monetary policy transmission and will support the expansion of the asset management and mutual fund industry in China. It will also provide an important source of fixed income for China’s savers. At inception, the Chinese municipal bond market in China is likely to be USD 1.7trn, making it the second largest of its kind in the world (after the US) and 30% larger than the entire USD denominated EM corporate debt market. ~ The emerging view August 2015

China’s two-yuan dilemma ~ 31 Aug 2015

China’s debt termites ~ 19 Aug 2015

SingTel takes hit in global currency war — Barron’s Asia ~ 19 Aug 2015

China's currency move could help it join IMF's elite forex club ~ 12 Aug 2015

Understanding Yuan devaluation ~ 12 Aug 2015

All roads lead to the IMF; SDRs to replace dollar as New World Currency ~ 28 Apr 2014

China enters the great credit trap ~ 22 Mar 2014

Will the dollar lose its Reserve Currency status to an SDR Currency? ~ 14 Nov 2013

USD/CNH experiences historic breakout — next stop 6.8000 ~ 11 Aug 2015