Thread by @Brad_Setser

Turkey seems to be intervening heavily to support the lira this week, per Reuters.

Also note the involvement of the state banks. Highlights why I have some doubts that the transparency provisions in the rumored currency pact with China will amount to much.

1/x

Turkey doesn't have that much fx of its own, which makes selling fx to support the lira risky -- and the state banks may be just acting as agents for the CBRT.

2/x

reuters.com/article/turkey…

Plus Turkish banks (including the state banks) have large fx deposits at the CBRT, so if they are using their own balance sheets, it tends to show up eventually in reported reserves --

3/x

But there would be ways to avoid that --

Think of the GoT selling $ bonds, putting the funds on deposit at the state banks, and ordering the state banks to sell into the market

No impact on reported reserves at the CBRT

4/x

I mention this in part because the transparency requirements for China won't cover the state banks (to my knowledge), and, well, China has a lot of ways to hide its intervention.

5/x

Without the Chinese data series on fx settlement (which includes the state banks) we actually wouldn't have much of an idea what China's authorities have been doing over the last 2.5 years (reported fx reserves at the PBOC are very smooth)

6/x

The settlement data doesn't show a ton of activity (I am among those who think China has been able to manage the yuan largely through signalling and without large sales) but it shows more activity than other measures.

Just saying

7/7