2015-08-11forbes.com

This brings us back to the liberalization of the Chinese financial economy. China needs the yuan to be widely accepted OUTSIDE China if it is to have any chance of becoming one of the IMF's SDR basket currencies -- the essential prelude to becoming a global reserve currency. Hence PBOC's reluctance to devalue.

So now, having been forced to devalue because of bad economic news, the PBOC is making a virtue out of necessity. Devaluing the yuan is presented as part of its liberalization strategy.

... The reluctance of the PBOC to devalue may prove costly. Even with the partially-closed Chinese capital account, Fed monetary policy transmits itself to the Chinese economy through the REER... Even with this devaluation, and probably more to come, China is set for a very hard landing.

And because of this, Fed interest rate rises look unlikely. China's economy is easily big enough for a hard landing to have significant global effects. The US's recovery is not so strong that it can absorb a sharp global contraction.



Comments: Be the first to add a comment

add a comment | go to forum thread