Terence Nunis’ Post

Nobody who understands economics would ever say that China’s currency is overvalued. Some economists suggest that the yuan is undervalued by 15% to 40%, while others argue that based on purchasing power parity, the renminbi is undervalued by approximately 30%.  These figures can vary based on different economic indicators and the time of analysis.  The People’s Bank of China manages the value of the yuan against a basket of currencies to keep its value low compared to other countries.  This approach helps to make Chinese exports cheaper and more attractive compared to those of other nations. An overvalued exchange rate means that a country’s exports will be relatively expensive, and imports will be cheaper.  This could depress domestic demand and encourage spending on imports. An undervalued currency makes imports more expensive.  This promotes demand for domestically produced goods and services, supporting local industries. It is a form of protectionism. While promoting domestic industry can be a positive, it also means reduced competition from imports.  This could potentially lead to complacency among local firms and a lack of innovation. Chinese firms are known for copying foreign competitors, not innovation. A weaker currency can stimulate economic growth by making exports cheaper and more attractive to foreign buyers.  This has been a significant factor in China's economic boom, with growth rates hovering around 10% from 1995 to 2010. An undervalued currency can make foreign direct investment more attractive.  Investors can get more of the local currency for their own, reducing the cost of buying land, factories, or other assets in the country. An undervalued currency can reduce the international purchasing power of citizens.  This can make foreign goods and travel more expensive. It also suppresses domestic retail discretionary spending to an extent. The value of a currency can influence inflation and interest rates.  If the economy is booming, an overvalued exchange rate can help reduce inflationary pressure.  But in a recession, an overvalued exchange rate can cause further deflationary pressures. A weak or strong currency can contribute to a nation's trade deficit or trade surplus over time. An overvalued exchange rate can also lead to problems, particularly during periods of sluggish growth.  If a country has a limited labour supply, an undervalued currency can lead to increased wages, which can in turn lead to inflation. China’s dropping birth rates mean this is becoming a prevailing problem. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

Nobody who understands economics would ever say that China’s currency is overvalued. Some economists suggest that the yuan is undervalued by 15% to 40%, while others argue that based on purchasing power parity, the renminbi is undervalued by approximately 30%.  These figures can vary based on different economic indicators and the time of analysis.  The People’s Bank of China manages the value of the yuan against a basket of currencies to keep its value low compared to other countries.  This approach helps to make Chinese exports cheaper and more attractive compared to those of other nations. An overvalued exchange rate means that a country’s exports will be relatively expensive, and imports will be cheaper.  This could depress domestic demand and encourage spending on imports. An undervalued currency makes imports more expensive.  This promotes demand for domestically produced goods and services, supporting local industries. It is a form of protectionism. While promoting domestic industry can be a positive, it also means reduced competition from imports.  This could potentially lead to complacency among local firms and a lack of innovation. Chinese firms are known for copying foreign competitors, not innovation. A weaker currency can stimulate economic growth by making exports cheaper and more attractive to foreign buyers.  This has been a significant factor in China's economic boom, with growth rates hovering around 10% from 1995 to 2010. An undervalued currency can make foreign direct investment more attractive.  Investors can get more of the local currency for their own, reducing the cost of buying land, factories, or other assets in the country. An undervalued currency can reduce the international purchasing power of citizens.  This can make foreign goods and travel more expensive. It also suppresses domestic retail discretionary spending to an extent. The value of a currency can influence inflation and interest rates.  If the economy is booming, an overvalued exchange rate can help reduce inflationary pressure.  But in a recession, an overvalued exchange rate can cause further deflationary pressures. A weak or strong currency can contribute to a nation's trade deficit or trade surplus over time. An overvalued exchange rate can also lead to problems, particularly during periods of sluggish growth.  If a country has a limited labour supply, an undervalued currency can lead to increased wages, which can in turn lead to inflation. China’s dropping birth rates mean this is becoming a prevailing problem. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

One more nail in America’s coffin: As of 15 Jan 2020 — Conventional wisdom suggests that China, as the world's largest economy with $3 trillion in foreign reserves, no longer needs to borrow. IMF Admits China Has Overtaken The US As The World’s Largest Economy as of 2016. Therefore whatever America says one must believe the opposite. America has proven to be consistent and habitual liars. No other words for it. It is simply what a nation resorts when it is completely and entirely decimated.🤡🤡 https://lnkd.in/g2fnzSSF

China’s currency, the yuan, has recently reached its strongest level against the US dollar in over a year. This remarkable achievement is driven by a combination of factors, including China’s economic resilience, monetary policy adjustments, and shifting global market sentiment. The yuan has appreciated by approximately 5% against the dollar since August, marking its largest […]

China’s currency, the yuan, has recently reached its strongest level against the US dollar in over a year. This remarkable achievement is driven by a combination of factors, including China’s economic resilience, monetary policy adjustments, and shifting global market sentiment. The yuan has appreciated by approximately 5% against the dollar since August, marking its largest […]

The offshore yuan is gaining significant traction against the US dollar, having surged by 0.87% in just three days. This momentum reflects growing optimism about China’s economic stability and potential US interest rate cuts. As global investors increasingly turn to Chinese bonds as a safe haven, the yuan’s appreciation highlights a shift towards greater confidence in China's economic resilience. With the dollar potentially weakening and China’s outlook strengthening, the yuan is poised to maintain its upward trajectory and solidify its position in the global financial landscape. #Yuan #Chineseeconomy #globalfinance

China Tried To Defend The Yuan...And Failed Once again, Beijing is caught in a Catch-22. It can defend the yuan, or it can pump up the stock markets and the economy. It cannot do both. If it intervenes in the markets, it risks further yuan depreciation. If it defends the yuan, it cannot intervene in the markets, risking further market declines. To make matters even worse, China has been defending the yuan through policy measures for the past four months—and arguably pursuing monetary policies that are contraindicated for an economy in deflation—and yet the yuan still dropped. The end result is both economic and currency deterioration. https://lnkd.in/gEuePj9D #China #economy #yuan #deflation #inflation

YUAN DEPRECIATION INEVITABLE According to George Magus, noted China scholar, in the FT. Beijing has decided the remedy for their stagnant economy (growing at 5% in real terms) is monetary easing. Given that the problem is inadequate household income, lower rates won't help, it's just pushing on a string. But as interest rates slowly decline, downward pressure on the Renminbi is inevitable, despite China's large current account surplus. Once again, echoes of post-bubble Japan. [FT] Unless inflation in China is going to turn up sustainably, which seems a long shot given enduring supply and demand imbalances, nominal interest rates are headed, incrementally, towards zero. These circumstances then raise for China a new so-called Mundell-Fleming trilemma, named after the two economists who argued that a country can only ever choose two out of these options: an exchange rate pegged to another country, an independent monetary policy and open capital flows. China has typically opted for a soft peg and monetary independence. Over the past several months, the government has moved to harden the peg, and required state banks to intervene to support the renminbi close to about 7.25 to 7.3 to the dollar. In coming weeks and months, we should expect reductions in interest rates in an economy that remains on the cusp of deflation with softening domestic consumer demand. Loose financial conditions, further falls in some asset prices such as property, and weak investment returns would probably exacerbate unrecorded capital outflows despite controls. In the face of both, the renminbi is likely to get weaker. This outcome is made all the more likely if the growth of liquidity in the financial system expands so much as to swamp the practical capacity of currency reserves to maintain a relatively fixed currency and finance larger capital outflows. Between 2014 and 2017, I estimate China’s financial system assets rose from four to 11 times the reserves. In 2023, at $65tn, they were 20 times as large. This cannot go on without limit, and eventually, following Stein’s law, the renminbi will be the weakest link. https://lnkd.in/egcAc8zp

Only time will tell how long this unenviable downward spiral can continue in China, but the longer it goes on, the less likely it is that China will be able to salvage its economy and pull out in time to avoid complete economic chaos. #China #economy #yuan #deflation #inflation