1/11
In the second part of his important speech, Zhou Chengjun, the PBoC’s head of research, argues that “an international currency’s exchange rate arises from the large number of transactions conducted by currency holders around the world.
caixinglobal.com/2021-06-25/why…
In the second part of his important speech, Zhou Chengjun, the PBoC’s head of research, argues that “an international currency’s exchange rate arises from the large number of transactions conducted by currency holders around the world.
caixinglobal.com/2021-06-25/why…
2/11
It is not decided by the central bank that issues the currency. Aside from that issuance, the central bank has no decision-making power.” He goes on to conclude that “we have no choice but to acknowledge that in the context of RMB internationalization, we can’t control...
It is not decided by the central bank that issues the currency. Aside from that issuance, the central bank has no decision-making power.” He goes on to conclude that “we have no choice but to acknowledge that in the context of RMB internationalization, we can’t control...
3/11
its exchange rate, and the PBOC would ultimately relinquish any hopes of determining its exchange rate.”
This is an important point in a heated debate within China about the extent to which Beijing will allow international considerations to trump domestic ones.
its exchange rate, and the PBOC would ultimately relinquish any hopes of determining its exchange rate.”
This is an important point in a heated debate within China about the extent to which Beijing will allow international considerations to trump domestic ones.
4/11
The PBoC, the financial regulators, many of the most prominent economists, the extremely wealthy, and, I suspect, the major banks all want to see increasing internationalization of the RMB, (as do many less-informed officials in the foreign affairs and military...
The PBoC, the financial regulators, many of the most prominent economists, the extremely wealthy, and, I suspect, the major banks all want to see increasing internationalization of the RMB, (as do many less-informed officials in the foreign affairs and military...
5/11
establishments), but they may be underestimating the risk to a country like China, with its extremely unbalanced economy, soaring debt, embedded moral hazard, mismatched balance sheets and systematically overvalued financial assets (Galbraith’s “bezzle”).
establishments), but they may be underestimating the risk to a country like China, with its extremely unbalanced economy, soaring debt, embedded moral hazard, mismatched balance sheets and systematically overvalued financial assets (Galbraith’s “bezzle”).
6/11
China can impose financial stability domestically only because its financial system is closed and regulators control the liability side of domestic balance sheets. The point Zhou makes about RMB internationalization is that Beijing will have to get used to giving up control.
China can impose financial stability domestically only because its financial system is closed and regulators control the liability side of domestic balance sheets. The point Zhou makes about RMB internationalization is that Beijing will have to get used to giving up control.
7/11
These by the way are the same groups that pushed for the internationalization of domestic financial markets in Mexico in the early 1990s, and in Brazil, Russia and the East Asian “Tigers” in the mid-1990s. In many of those cases (and this has also long been rumored to be...
These by the way are the same groups that pushed for the internationalization of domestic financial markets in Mexico in the early 1990s, and in Brazil, Russia and the East Asian “Tigers” in the mid-1990s. In many of those cases (and this has also long been rumored to be...
8/11
the case in China), one reason financial authorities pushed for financial liberalization is because they worried that this was the only way to force through much-needed reforms in the domestic financial system that had otherwise been politically too difficult to implement.
the case in China), one reason financial authorities pushed for financial liberalization is because they worried that this was the only way to force through much-needed reforms in the domestic financial system that had otherwise been politically too difficult to implement.
9/11
But relying on external factors to force domestic reforms is a risky strategy. In each of those earlier cases, what seemed like manageable risk during times of rapid growth and capital inflows subsequently turned out to be unmanageable when conditions suddenly...
But relying on external factors to force domestic reforms is a risky strategy. In each of those earlier cases, what seemed like manageable risk during times of rapid growth and capital inflows subsequently turned out to be unmanageable when conditions suddenly...
10/11
changed, often for external reasons over which domestic authorities had little control. See the very good piece last week by Duvvuri Subbarao, a former governor of the Reserve Bank of India on just how hard it is to control this risk.
ft.com/content/30652b…
changed, often for external reasons over which domestic authorities had little control. See the very good piece last week by Duvvuri Subbarao, a former governor of the Reserve Bank of India on just how hard it is to control this risk.
ft.com/content/30652b…
11/11
I would add that Zhou’s explanation later in his speech about why Japan’s experience after the Plaza Accord was so different from that of Germany’s is very different from mine, and I think underestimates the corresponding risk to China.
I would add that Zhou’s explanation later in his speech about why Japan’s experience after the Plaza Accord was so different from that of Germany’s is very different from mine, and I think underestimates the corresponding risk to China.
"According to monthly BIS data, the nominal EER of the Chinese yuan climbed 1.12 percent to 122.01 from April 2016 to May 2021. The real EER edged down from 127.17 in April this year to 127.08 in May."
xinhuanet.com/english/2021-0…
xinhuanet.com/english/2021-0…
• • •
Missing some Tweet in this thread? You can try to
force a refresh
