be resisted. As Jens highlights, China's FX reserves collapsed in 2015/16/17, falling 1.0 Trio USD. PBOC MU, the head of the digital lab told us at HK blockchain week in 2019 that the popularity of #bitcoin during this period lead the PBOC to fear for sovereignty of the Yuan. So
China decided to launch it's digital Yuan project as all the outflows were leaving the country. They broke the dollar peg in aug 2015, which crushed US stocks, and pivoted to tracking the CFETS basket a precursor to DCEP. China has changed its FX regime on avg every 5 years.
Winter olympics is bang in range of 5 year avg for DCEP launch. Look at the power of China's FX Manipulation. Instead of tracking the dollar only, they now targeted 15+ currencies. CNY TW dropped a whopping 10% making it competitive in anticipation of upcoming E-CNY launch.
in Aug 2015, China devlaued 3%. PBOC still wanted to weaken Yuan competively but also needed to cut off outflows. Targeting CFETS basket aloud them sell dollar's against basket component's. Euro, Yen, KRW Gold all contributed to Trade weighted (back door) delvaluation of 10%
When Covid appeared, perhaps due to the drop in Chinese offshore tourism, but mindful of the imminent launch of its new digital reserve currency the chinese enouraged CNY strength(8%). in 2020 they 'decoupled' from the dollar. USDCNY dropped & #BTC rallied from 10k-40K
Jens highlighs China wants to ensure #Yuan is strong to earn Credibility. Inevitably this has consequences for the #dollar & #bitcoin, #gold too. In 2015 China sold dollars vs $Eur, $JPY, $XAU. In 2017 $KRW was added to the CFETS basket. Net effect : a big boost in competiveness
In 2020 they 'decoupled' from $DXY. #BTC rallied⬆️ 10 to 40k. In March 21, PBOC said Bitcoin was linked to money laundering. #BTC ⬇️ 55k to 29k. Bottom Line; If China can move $USD where it wants & BTC is a threat, they will avoid 2014/17 rerun where CNY & BTC weakened together
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Irreconsilable
US twin deficit's & Fed policy point to continued dollar weakness.
Fed adopted new inflation regime targeting 2.5% AIT.
China, tied No1 holder of $DXY reserves intend's to offer its DCEP/CBDC as a dollar alternative leading CB's to diversify away from $USD
Eurozone is caught in a pincer movement where HICP is collapsing and Project Digital and EU 750 Bio bond will if they are to be successful require tolerance of validating inflows. Increasing QE further risks zombification of EZ banks which are already in trouble.
Europe needs
a magic bullet. Talking down the Euro when @Lagarde and @Paschald highlight the urgent need to adopt a digital Euro and at the same time welcome europe's forthcoming 750 Bio 'Safe Asset' common bond which will inevitably lead much needed inflows if they are to validate Europe's
China Outflanked Trump. The Game Is Lost.
Trump is a flailing desperate drunk, swinging for China on Trade & Covid. WH went ''all-in'' on China trade purchases ( wont happen ), meanwhile Covid unwind has been a disaster ( x2 dip ?) leaving Trump 2020 chances almost negligible.
Contrast with China, now on road to recovery with monetary stimulus negligible vs FED which might do more (Clarida) & likely congress slow on more fiscal. Exploding dificits & easy Fed will weigh on dollar. Meanwhile China declared a war of its own, building a tech revolution &
then a ''call to arm's'' telling its people to get on board the stock market. yield differential & state sponsored tech explosion ( Nasdaq 95-00 ) will lift the Yuan driving a broad dollar drop. A weaker dollar boosts global growth ( NB 2009 it helped start a stock mkt rally
Evidence China Manipulates S+P
I've argued China bought dips 17 X from March Asian lows. bit.ly/2VQ4trY Price action today same MO-> rally on little news, coincidentally rallies also. @WSJ concludes same. Asia Buys While U Sleep on.wsj.com/2KnmM2i
Why China Buys US Stocks
Aug 2015 Yuan Deval established a direct causal effect between weaker Yuan and weaker US stocks. Thru my career market participants would say that when when rolls over, correlations converge to 1 likely due to globalisation inter-connectivity. Thus
as china exported #COVID19 , global disconnectedness generated negative tail risks and blowback, opening China up on many front's. The negative export loop where exporting #COVID19 lead to a global pandemic and a collapse in its export's increasing Yuan / interdependence.